1. Separate the object you want to make the halo around into a new layer. If you are editing a photo, you may have to use quick mask to separate it out from the image and paste it back as a layer.
  2. Make a layer between the background and the object for the flame (Although you might want to move it above the object to make step 3 easier). Use clouds, possibly with difference clouds over them, for the flames.
  3. Use Layer->Add Layer Mask->Hide All. Hold control (or apple) and click on the object layer. Be sure the current layer is the masked flame layer, and then fill the resulting selected shape with white. Trace around the shape with a white brush, adding anything that you think the shape of the halo needs (flames extending on the top, ect.). Then use gaussian blur at a level around five.