the literal meaning of the word is a "box for holding tinder", tinder being something combustible you use to start a fire. A tinderbox can also be a potentially dangerous situation or location.
The proper usage of the term is as an insult that sarcastically implies that somebody is 'fake tough'.
"Dang B! The Angeles National Forest is a tinderbox during the hot, arid summer."
"Hey tinderbox, wanna do something about it?"
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