Ralph means this literally and figuratively, because he wants them to keep the signal fire going so they can get rescued.
The fire is very important to Ralph. It holds high symbolic significance. As the leader on the island, Ralph considers it his duty to get the boys rescued. He is also the one who considers returning to civilization important, whereas Jack is more comfortable on the island, where he can hunt and paint his face and act like a savage.
Making a fire and having someone watch it is one of the first rules Ralph makes. It is one of the ways he shows his authority, and in some ways he is right. How else can the boys show anyone that there is someone on the island that wants off?
“There’s another thing. We can help them to find us. If a ship comes near the island they may not notice us. So we must make smoke on top of the mountain. We must make a fire.” (Ch. 2)
However, the boys make a signal right off the bat by letting the fire get out of control. It starts a forest fire of sorts. Fire may make them civilized, but it is not the easiest feature to navigate.
Ralph gets frustrated because he feels like the other boys are not really paying attention to him, and his authority is not unquestionable. He was chosen leader when he blew the conch, and because he is tall enough to be a connection to the adult world for the little kids and good-looking enough to be respected by the older ones.
However, he proves that his leadership skills are lacking. When he makes this comment about the smoke, you can tell that he is getting frustrated. He goes on to complain that they really need to be careful when it comes to fire.
“We nearly set the whole island on fire. And we waste time, rolling rocks, and making little cooking fires. Now I say this and make it a rule, because I’m chief. We won’t have a fire anywhere but on the mountain. Ever.” (Ch. 5)
This is partly a desperate attempt to regain his authority and lay down some rules. The boys are getting out of control. They are loafing and playing, and breaking into factions. Ralph worries that Jack’s hunters follow him mindlessly, and he cannot control Jack. He also has no idea what the little ‘uns are doing most of the time.
For Ralph, this comment about the smoke is not a statement of hyperbole so much as a statement of fact. It is both literal and figurative at the same time. They will either make the smoke, or they will die on this island, either because the fire will consume them, or they will never be found.