Smokestack lightning is common enough knowledge in elementary physics for the term to have crept into the common vernacular. As indicated above, any time a non-conducting or poorly conducting matter is moved, as when smoke is convected up a stack, the voltage of the moving material increases relative to the starting point, and the material "left behind" generally has a similar but opposite voltage increase. The two voltage changes mean that subsequent material flowing up the stack is "more charged" than the initial flow, and eventually the material may built up sufficient voltage to break down so that a spark (lightning) discharge occurs.

The physical principles involved were the basis for the "Van de Graaf Generator" in which an insulated belt was used to "move the charges," used in early (1930s?) "atomic research," although the voltages obtained were generally limited to a few hundred thousand volts - considered grossly inadequate in most "modern" research.

People with a view "inside a tall smoke stack" see the discharges fairly frequently unless they're deliberately suppressed, and the discharges occur outside a tall stack often enough to be occasionally seen by casual bystanders.

The same phenomena occur in some volcano eruptions, and there have been some very interesting new (very recent) reports on studies of "volcano lightning." It's also possible to kill yourself by jumping out of an airplane and being electrocuted by the static charge that can accumulate in flight by similar effects, and similar "lightning" was a known problem in some early wind tunnels.

Since the term was at least vaguely known among the more general population, the name was logically enough applied to the sparks coming out of coal fired railroad engine stacks, although those stacks have almost never been tall enough to generate electical (lightning) discharges.

In my area, ca late 1940s and a little after, the farmers "knew of" the railroad version, and frequently made reference to the prairie fires (all too common) caused by the railroad "smokestack lightning" - i.e. the sparks emitted from the stacks. (They were apparently not much aware of the "shakeout coals" dumped to make room for more coal in the burner, that probably were the more frequent real cause of the range fires?)

Whether or not these known and documented usages of the term have anything at all to do with a given song is something we can guess about until ... (back then it was 'till our jaws wear out, but I guess now it would be 'till our fingers are numb?). If we can't ask the author/composer what was on his mind (if anything) any good guess is about as accurate as the next one. Lots of perfectly good words are used where the original meaning is lost in new contexts. Sometimes the new usage just "scans better" than something more "accurate."

(When you forget the words, just mouth "watermelon" since it fits all possible lyrics and makes it look like you're singing 'em???)

John