Despite being a game about Vikings fighting monsters, Valhiem likes to play by real-world rules in many instances — and that includes smoke inhalation, and putting fires on wooden floors.
Placing a Campfire Indoors
Having a fire in your shelter is very convenient; it lets you cook without going outside, and allows you to stay warm while sleeping without having to put a fire outside near your bed. However, you can’t place a campfire on wooden floors. If you have access to iron, you can build a stonecutter and create a stone floor, but when you’re just starting out, your only choice will be to place your campfire on the ground.
Use the hammer’s Remove function [Middle mouse button on PC] to remove a section of your floor, then place the campfire on the dirt. Don’t pick a spot in a corner, since that will make it more difficult to use a chimney. Instead, pick a section further in from the corners, but close enough to your bed to still give the “Fire” status effect.
Creating a Chimney
Putting a campfire inside leads to smoke accumulating in your shelter. Depending on the shelter’s size, you may be able to get away with not creating a chimney. However, if you find yourself taking damage and getting the “Smoked” status effect, you’ll need to get rid of the smoke.
Doing so is easy, and simply requires reversing one of your roof tiles. By facing one segment of your roof outward instead of inwards toward your roof’s peak, the smoke will be allowed to leave your shelter, but rain will be prevented from coming in.
Make sure that you put the chimney directly above your campfire, or the smoke will sometimes not leave your shelter. Also note that you can certainly make more complex, or more aesthetically pleasing chimneys. The only requirements are that it is above the fire, and that there is something above it to prevent rain from entering your shelter.