From Team Fortress Wiki
Three unusable Napalm Grenades are worn on the Pyro's belt. Colored gray and yellow-orange, they serve little gameplay purpose other than as a visual aid for players when targeting. The Napalm Grenade was most likely going to function exactly like its counterparts from Team Fortress and Team Fortress Classic. Napalm Grenades can be replaced by items in the Grenade equip region, such as the Cremator's Conscience, Ornament Armament and the Bonedolier.