The flamethrower was a weapon used aboard Sevastopol Station which was very similar in design to the Flame Throwers utilized by the crew of the USCSS Nostromo. Using propane as fuel, one flamethrower tank had a maximum capacity of 500 fuel, the amount of which was indicated by a gauge on top of the flamethrower.
The flamethrower (along with the Molotov and Pipe bomb) is one of the only weapons in the game that has any meaningful effect on the Alien. While it will not damage or kill the creature, a blast of fire from the flamethrower is usually enough to make it retreat into the station's ventilation system. However, a blast that's too short or from too far away will often not cause it to retreat, and the Alien will usually temporarily stand still to defend itself from the flames before slowly approaching the player. If the player is very close to the creature when they fire at it, the Alien will temporarily knock them down, damaging the player's health. If the player's health is very low and they are too close to the creature when they fire at it, the Alien will completely ignore the flames and still kill the player.
It should also be noted that, owing to the Xenomorph's ability to learn from the player's actions over the course of the game, simply readying the flamethrower in its presence later in the game can cause it to act more cautiously, advancing slowly on the player instead of charging as normal, even if the weapon is not actually fired. However, at the same time, the Alien will become more resilient to the weapon as it learns — after repeated use, longer bursts will be required to ward the creature off and make it retreat back into the vents, costing the player more fuel. As such, it is recommended to use the flamethrower in moderation and only when absolutely necessary.
Behind the scenes
The flamethrower's design is clearly based on the flame Throwers built by Parker in Alien. Additionally, the weapon's front grip in Alien: Isolation is based on the laser pistols used in the film (which were actually built from Rexim-Favor submachine guns).