3what it changes
It does not recolor anything. What it adds is a dark gray flame effect over whatever sits in the slot, plus a glow that keeps the piece readable in the dark without lighting the room around you.
Because it is an overlay rather than a color, it stacks with itself in a way most dyes cannot. Filling every dye slot with it makes the flames stronger instead of just applying the same look three separate times, and that stronger version is what most people are actually after.
It comes out of Hardmode treasure bags with the rest of the developer set at long odds, so there is no way to go get one deliberately. Queen Slime never drops any of it.