The New York Times writes:
The potential for fire in a lithium-ion battery is a result of its chemical composition. Contained in that small package are all the elements needed for a fierce blaze: carbon, oxygen and a flammable fluid. The battery is made of a thin layer of lithium cobalt oxide, which serves as the cathode, and a strip of graphite, the anode. These are separated by a porous insulator and surrounded by fluid, a lithium salt electrolyte that happens to be highly flammable.
When the battery is charged, lithium ions on the cathode migrate to the anode. As the battery is used, the ions migrate back to provide the energy. In the charged state, the cathode without most of its ions is highly unstable. If a spark occurs, the temperature of the cathode can exceed 275 degrees.