Short Answer: It signifies the burning of the impurities of our heart and the subsequent realization of our spiritual glory.
Answer: Let’s first understand the significance of festivals themselves.
In traditional Vedic culture, festivals served a purpose that has been almost forgotten nowadays. They were primarily meant to bring humanity closer to divinity; they served as occasions for people to put aside their worldly preoccupations and focus on the Lord and His glorious deeds, as connected with the specific days of the festivals. Without knowing this spiritual purpose, people nowadays seek only material fun through festivals and miss the internal enrichment.
The festival of Holi, celebrated on the last day of the bright fortnight of the month of Phalgun, offers an excellent opportunity to regain what we have missed for long.
Let’s now come to the bonfire.
The history of the bonfire dates back to millennia, when the demon king Hiranyakashipu ruled and terrorized the universe and considered God, Vishnu, and His devotees to be his arch enemy. When the demon saw that his own son, Prahlada, had become a devotee of Vishnu, he became enraged and decided to kill Prahlada. But Lord Vishnu protected Prahlada during all the assassination attempts. In despair, Hiranyakashipu ordered his sister, Holika, who had been blessed with immunity from fire, to take Prahlada into fire and burn him to death. She complied, but to the dismay of the demon, Prahlada came out of the fire, unscathed, being protected by Lord Vishnu, whereas Holika was reduced to ashes. Why? Because she had been given that blessing by Brahma with the condition that it shouldn’t be used to cause harm to others. This burning of Holika is commemorated by the bonfire and by the name ‘Holi’.
The significance of this historical narrative is immense. Prahlada signifies our godly, serving, selfless nature; Holika, the ungodly, exploitative, selfish tendency that covers our original nature. When gold is placed in fire, the impurities melt away and the purified gold emerges, shining brighter. Similarly, the purifying Holi bonfire signifies the burning away of our superficial, lower tendency and the re-emergence of our essential, higher nature. When our pure nature re-emerges, we realize our identity as spiritual beings, as souls, who are sac-cid-ananda, eternal, enlightened and ecstatic. Realizing our identity as the beloved children of the infallible Lord, we become free from fear and full of joy.
Prahlada emerged triumphant from the fire by dint of his unflinching devotion to the Lord. Similarly, we will emerge successful through all the fire-like trials and tribulations of life by developing unflinching devotion. Just as Prahlada developed devotion from his devotee-guru Narada Muni, we too can develop devotion by learning chanting of God’s holy names from a contemporary devotee-guru.
With this devotional training, when we light the Holi bonfire, then the sacred fire will illuminate us not just externally, but also internally.