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The holder is inflicted with the burn status at the end of the turn. The effect remains even if the item is removed. Prevented by Safeguard, but not by Substitute. If the holder was not already burned, they do not lose HP until the following turn.
At first glance, the Flame Orb looks like a very bad item. However, this is not always the case. Flame Orb can forcefully activate the Guts ability of Pokemon such as Heracross, Swellow, Hariyama, and Ursaring. It should be noted that more fragile Guts-abusers, like Swellow, are usually better off using Toxic Orb, as they won't be staying in for very long. (For the first two turns, Toxic Orb deals less damage than Flame Orb; on the third turn, the damage is equal. After the third turn, the poison will deal more damage than the burn). Bulkier Pokemon like Hariyama, or Pokemon meant to sweep, like Heracross, could make good use of the Flame Orb though.
The Flame Orb is a very nice item to Trick onto other Pokemon as it will cripple physical sweepers (without Guts) or at least do consistent damage to walls or special sweepers while removing their Leftovers (Tricking will also take away their item). Lopunny with Switcheroo is a good Pokemon to use when employing this strategy because it can use Switcheroo on the second or third turn it's in play without burning itself (because of Klutz).
Flame Orb can be used on Pokemon with Trick and Natural Cure, such as Starmie and Celebi, in order to cripple physical attackers such as Scizor, hoping to switch in for free. Celebi and Starmie can then switch out to rid themselves of burn status.
Lastly, Psycho Shift Pokemon, like Cresselia, could make good use of the Flame Orb, though Leftovers usually proves more useful (Cresselia is also better off Psycho Shifting sleep rather than burn). It is common to see players wanting to use the Flame Orb on their Milotic to automatically get the Marvel Scale Defense boost. This is generally not a good strategy because Milotic will rack up a lot of damage over the course of a few turns because of the burn. If you really want to consistently get the Marvel Scale boost, Rest + Sleep Talk is a better strategy.