To “castrate” is to remove the balls, usually of dogs. Here, CiNo takes this practice to homosexuals, apparently. However, the way he does this is by setting the person on fire– extra cruel. “Flame” is another derogatory name for gays, so CiNo “wraps” them full of fire.
CiNo “spits fire” because he raps so well, but he also literally spits fire onto the gasoline poured on the victim to light him up, like Spyro (video game based on a small fire-breathing dragon)