Originally Posted by Mad About Drums
Smoke on the water, the fire in the sky...
... this is 1971, and Deep Purple was there... they wrote that iconic song in relation to the fire of the casino of Montreux... now you know Madge :)
They were not just there, they had brought mobile recording gear out because they were going to set up the next day to record their next album in that room, after Frank Zappa's show that night.
Someone in the audience of the Zappa show set off a flare gun, and the whole place burned down, prevented Deep Purple from working on their album and forcing the band to find a new place to record. Watching the venue burn, and the frustration of no longer being able to get to work on their next album lead to writing the song.
It's an interesting mini-circle of life: Not being able to record an album lead to inspiring what would later become their biggest hit. But if the venue hadn't burned down, they would have fulfilled their artist desires of recording but without this song.
Even though the lyrics themselves are a bit silly, I think the under lying theme of re-birth, 2nd chances, and making something positive about a disaster are part of why the song has remained for popular over the years.