Yes, it means that. It’s the same as "light a joint." (<= A lot more common.) I've only heard "light a bone" in lyrics, to be honest, and maybe read it in a book or two. It might be common in specific rural areas.
Unlike the fellow who precedes me, I don’t think you need to be paranoid about using it or not, or about befriending someone who speaks with more slang. He's what I like to call "wrong." Frankly, his unsound assumption that these people are more than likely dumber, dishonest and impolite make him fit those little words perfectly. A way someone speaks doesn't reflect their intellectual capacity or how earnest they are, and politeness is subjective. Smokers are also not lower beings. To think slang is composed of bad grammar used by evildoers alone or how he thought you'd automatically use it—I scoff and bite my thumb at thee.
It’s impossible to learn a language or sound natural without its colloquialisms. Learning any language from books or classes will insist on being polite and the formal rules of the language, but not how to speak like a native. I think you're smart enough to know that slang is casual speech and should only be used in certain situations. Of course, overusing them and learning uncommon ones might give you funny looks, but that's all part of learning. So, sir, embrace it and enjoy the world around.
*Sorry for ranting xD