The "Lake Of Fire" is Hell. There is a lot of biblical imagery in the lyrics, and the song can be seen about how the Christian church uses the idea of hell to scare people into following their beliefs (Meat Puppets did a version of a song called "Jesus Don't Want Me For A Sunbeam" which is also very sarcastic).
The song's writer, lead singer Curt Kirkwood, didn't set out to write religious commentary - his inspiration was far more jocose. He told us: "A lot of times I don't remember writing songs, I can't remember anything about like, how did I come up with that? But 'Lake of Fire,' we were all living together and everybody decided to go to a Halloween party, and they were all getting in costumes. And I thought, 'Man, this is one of the stupidest things - adults getting dressed up like we did when we were little kids.'
I had actually got pretty wasted on something and told everybody, 'No, I'm not going.' And then once I was alone, I just started messing around. I wrote a couple of songs that night. I wrote 'Magic Toy Missing' and 'Lake of Fire,' maybe one more. But I was just really trying to make fun of my friends for going out to a Halloween party." (Here's our full interview with Curt Kirkwood of Meat Puppets