It means a fire in which combustion is taking place somewhere exposed to the outside air, even if this is, for example, within a tunnel, rather than taking place entirely inside something enclosed, such as a machine, an incinerator, a cupboard, a pipe, or any other kind of container.

"(a) Exposed fires, definition. [...] The term "exposed" means any fire not entirely enclosed in a container such as an incinerator."
http://wiltonmanors.eregulations.us/code/coor_ptii_ch8_artiv...

The point is that an exposed fire is accessible to sprinkler systems and similar measures, whereas an enclosed fire is more difficult for them to reach.