For this project, I used two nice images that suits for the manipulation; image1, image2. I would like to thank the author of this two great pictures, which is thiquinho and huibidos from sxc.hu. And before we continue with the steps, I need to inform you that this tutorial is written using Photoshop CS3.
Let's start with image1, open and duplicate this image by using the Image > Duplicate command from the menu bar. In the Duplicate Image dialog box, you can name it anything you like, but to follow this tutorial reference, name it "PassionFire" and hit OK. By doing this, we kept the original image. Be sure to save.
With the "PassionFire" image active, duplicate the "background" layer. Set the foreground and background color to black and white by pressing D on the keyboard. Click the "background" layer again and fill it with the foreground color ~ which is set to black. See the images below.
Reactivate "Layer 1," then press Command + Shift + U to apply desaturate command. Now invert the color by pressing Command + I. Your image should look like a film's negative now.
Duplicate "Layer 1," then apply the find edges filter from Filter > Stylized > Find Edges. Next, invert the color by pressing Command + I and change the Blending Mode to Hard light. There, your image now has contrast white line and a very dark background.
To give the white line more contrast, duplicate the "Layer 1" copy then change the Blending Mode to Screen.
Now we move to the second image. Drag image2 into "PassionFire" document image window using the Move tool. If the Paste profile mismatch dialog appears, just click OK to fix it.
The fire image from "image2" should be in "Layer 2" now. Change its Blending Mode to screen, this will hide all the black colors in "Layer 2." If done right, your image should be similar to the one below.
Duplicate "Layer 2" by pressing Command + J. Make sure you use the Screen Blending mode, same as the original "Layer 2." Next, make "Layer 2" become invisible by hiding it from the layers panel.
Click the "Layer 2 copy" to make it active, then use the Free Transform command ( Edit > Free Transform) to rotate and resize the fire image like shown below. Don't forget to press Enter when you're done transforming.
Still in the same layer, now use the warp command (Edit > Transform > Warp) to bend the fire image - so it following the hair flow. Press Enter when done. See the example below as a reference.
If you feel the result is not quite good enough, simply use the Liquify filter to fix it. I assume you already know how to use the liquify filter; the Forward Warp tool and Twirl Clockwise tool is the only tool I used to get this result (see image below).
Duplicate the "Layer 2" copy, then use the Free Transform command to resize and rotate the fire image in the current layer. Don't forget to reposition the fire image too. Once you get this composition (see image below), hit Enter.
Repeat the previous process to get the hair covered with fire. Just duplicate and modify the layer until you get all the hair part covered. If needed, use the Liquify Filter again. The end result of this process should look like the image below, notice how many layers are used.
Okay, now activate "Layer 2" and make it visible again. Then Change the Blending Mode to Vivid Light. This step will colorize only the white line in the layer below it.