I
 started to understand the book better, but I have a question for 
someone who read it: what is the "inner fire" that continously appears 
in it? At the glossary it appears to be talking about some processes for
 the transmutation, but from what i saw until now, it is a force/energy 
in the body. Any ideas?
When I first asked about 
this book on this website - over 10 years ago - I was told not to read 
it because it was too dangerous. So then it took me many years later to 
realize it was the ONLY book I could read that specifically answered 
questions I had from training.
So regarding your question on "inner fire" - you can just word search the book in this format:
https://archive.org/stream/TaoistYogaAlchemyAndImmortalityLuKuanYCharlesLuk/Taoist
 Yoga Alchemy and Immortality Lu K’uan Yü (Charles Luk)_djvu.txt
There are many terms in the book that are interchangeable - and so it is confusing.
So searching inner fire - we discover - it is actually the prenatal qi or yuan qi - called prenatal vitality also.
By regulated breathing is meant deep breathing that 
reaches the lower abdomen to arouse the inner fire and then 
bring pressure on the generative force already held there 
forcing both fire and generative force to rise in the channel 
of control in the spine to the head.
So we see here - inner fire is not the generative force or yin qi.
detailed explanation of inhalation and 
exhalation of outer air to kindle the inner fire to cleanse and purify the 
generative force during the microcosmic orbiting.
And the light that is produced by the inner fire - is NOT the same as the light when the third eye opens up:
Therefore, when the outer alchemical agent has 
been gathered, it is necessary to roll the eyes to unite the 
positive with the negative principles in order to develop 
spirit in the bright light that emerges from the original cavity 
of spirit between and behind the eyes. This bright light 
shows the exact position of that cavity and should not be 
confounded with the luminous inner fire that rises to the 
head during the microcosmic orbiting as we have said earlier.
So
 another way to explain this is that light seen internally is from the 
"yang qi" - and so is the "relative void" but when you build up the yang
 qi - then the yuan qi manifests the Yuan Shen - and this is the 
"absolute void" and this light can be seen externally as well - and is 
much brighter.
In Taoist yoga the negative vitality is represented by the 
dragon and the positive vitality by the tiger, while their 
‘copulation’ brings into manifestation the original spirit 
in its bright light. 
When original or prenatal spirit manifests thus, it should 
be driven into the lower tan t’ien centre
So the original or prenatal spirit is also called Yuan Shen.
positive vitality is yang qi.
The arousal of the genital organ feeds the inner fire in 
the stove which transforms the generative fluid derived 
from digestion of food into negative generative force to 
fortify the body and enliven spirit thereby lengthening the 
span of life.
So negative generative force is yin qi.
So the "inner fire" transforms food into  yin qi but the "inner fire" is STRONGER than then yin qi.
With inner fire soaring up in his body, his (essential) 
nature is replaced by his heart so that desires and passions 
fill his being.
So here we have at age 16 - the 
"separation" of Shen or spirit that soars up - and then the qi that is 
lost as fluid going down. Heaven and Earth are no longer harmonized but 
separated - into heart and reproductive organ as kidney. So the inner 
fire appears to be the "yang qi" or "po soul" that grabs onto the hun 
soul (yin qi) that goes out the eyes.
in order to drive spirit 
into the cavity of vitality (under the navel). This is like a 
blacksmith using his bellows; the air from it blows the inner 
fire which, becoming intense, transmutes the generative 
force into vitality.
Here we have another hint:
By 
‘shifting’ is meant arousing the inner fire so that both outer 
and inner fires act on each other in order to enlarge all 
obstructed psychic channels and clear them of obstructions. 
Since positive fire is stronger than generative force, it 
drives the latter into all parts of the body to remove all 
impurities thus preventing the development of ailments.
So positive means yang. Inner fire means yang fire or yang qi which also means "with substance."
these two kinds of 
breathing are motivated by the sole thought of ‘leading 
the inner fire’ to turn the wheel of the law (for the double 
purpose of stopping all wandering thoughts and of blocking 
the drain of generative fluid). 
As I said, "substance."
So that goes to the head instead of out the lower body.
When the lower abdomen is full of generative 
force the inner fire is stopped by discontinuing all (alchemi¬ 
cal) breathing through the nose.
 
So more hints that the inner fire is indeed qi or vitality:
The method of gathering the microcosmic inner alchemical 
agent consists of rolling the eyes from left to right and vice 
versa to raise and lower the inner fire. The meditator should 
first direct his eyes down and roll them from the left up to 
the top of the head, thence lowering them to the right to 
look into the navel and the centre of vitality below it to 
complete a full turn as indicated in the diagram
So here
 we have - hints of how the inner fire is the yang qi that then turns 
into the yuan qi - to manifest the Yuan Shen, opening up the third eye:
This chapter discusses the method of using the micro¬ 
cosmic inner fire that passes through sublimating phases 
at the cardinal points D and J (see figure 2 on page 13) to 
produce the (microcosmic inner alchemical agent, which 
method is also called ‘inner copulation’ (nei chiao kou) 
meaning that after you have gathered enough of the (micro¬ 
cosmic) outer alchemical agent, true vitality, driven by 
ventilation and fire, will soar up to the brain; you should 
then roll your eyes from left to right in a complete circle 
in order to push vitality up and down so that the vital 
breath in the brain unites with the nervous system.
So true vitality also means Yuan Qi or prenatal vitality.
This negative state 
comes from an interruption of the inner (vital) breath which 
stops giving support to spirit fixed in the cavity of vitality 
(below the navel) thereby cooling the inner fire in the lower 
tan t’ien and preventing the light of the elixir from manifesting.
So to build up the spirit or shen - the qi has to be built up - the yuan qi - which is built up from the inner fire.
‘To remedy this negative state 
requires concentration of true inner fire which is done by 
fixing spirit in the lower tan t’ien, the source of foetal 
breath, by drawing the pupils of the eyes close to each other 
in order to bring the cavity of vitality into focus and by 
using the bellows to bring quick fire into action; as a result 
of pointed concentration a mass of true inner fire will soar 
up causing spiritual light in the cauldron to illuminate the 
whole body the four elements of which
So here for the first time we have "true inner fire" instead of just normal "inner fire."
So the yang qi as inner fire is transformed into "true vitality" or "true inner fire" aka Yuan Qi.
This
 process is from the Shen being fixed, concentrated, or visualized as 
fire below the water (the generative fluid) - thereby creating Air - the
 Qi as inner fire. This is the essence of the practice.
Seven kinds of fire, derived from spirit, to transform the generative 
force into vitality:
In this event inner fire should be gathered and lifted 
to produce spiritual fire which will emit the golden light
So
 now we have "spiritual fire" that is created from "inner fire." So it 
is the "true inner fire" that opens the third eye as the "spiritual 
fire" or prenatal spirit.
Therefore, when thoughts arise the practiser should use 
the inner fire that has flared up to turn the wheel of the law 
(i.e. direct it into the microcosmic orbit) to wipe them out, 
but he should never turn it when unsteady concentration has 
cooled down the inner fire so as not to injure the immortal 
seed.
So this is a subtle difference - just as when a 
person turns 16 - the inner fire rises up to the head based on thoughts 
of passion, causing the separation and loss of the generative force - 
and so this has to be reversed through meditation.
Ascent and descent of inner fire in the microcosmic orbit: When breathing 
in, the heart, spirit and thought should rise together in the channel of control from the cardinal point A at the base of the penis 
to the cardinal point G on the top of the head, and when breath¬ 
ing out, the heart, spirit and thought should together go down 
in the channel of function from the cardinal point G to A (see 
figure 2 ). The ascent is positive and the descent is negative. 
So
 this is the glossary definition - we can see then that "inner fire" is 
the alchemical meditation process of the shen and the thought as qi - 
together - that drives, cleanses and purifies the generative force.
A full fourfold breathing consists of in and out 
breaths with corresponding ascent and descent of inner fire in 
the microcosmic orbit which contributes to the immortal breath.
So
 with the outer alchemical agent - as the breath goes in and down, the 
inner fire goes up and vice versa and builds up the immortal breath or 
yuan qi.
the passing of inner fire through sublimating phrases at the cardinal points D and J of the microcosmic orbit, for the purpose of transmuting vitality into spirit 
whose full development causes a bright light, called the mysterious 
gate (hsuan kuan) to manifest in the original cavity of spirit 
between and behind the eyes.
So the generative force or jing (yin qi) is transformed into inner fire as yang qi aka 
the psychic fire
which is transformed into "true vitality" as yuan qi that manifests the prenatal or yuan shen light.
Driving the fire (into) is driving into the microcosmic orbit 
the inner fire which then passes through the sublimating phases 
at D and J to' gather the inner alchemical agent so that true 
vitality soars up to the brain which will then develop fully, 
causing a bright light, called the mysterious gate, to manifest 
between the eyes. 
Stove (lu ): A cavity where the inner fire is kindled by regulated 
breathing to put the generative force into microcosmic orbit 
and transmute it into vitality.
So part of this process is the regulated or synchronized breathing with the heart beat - cardiorespiratory synchronization.
https://www.ncbi.nlm.nih.gov/pubmed/15940533
 
 
Eur J Appl Physiol. 2005 Sep;95(1):88-95. Epub 2005 Jun 7. Cardiorespiratory synchronization during Zen meditation. Cysarz D(1), Büssing A.
So the inner alchemical agent is the Yuan Qi or prenatal true vitality.
The
 outer alchemical agent creates the inner fire - through breathing - and
 rotating the eyes (so the shen or spirit synchronizes with the qi).
Yuan Qi is also called "prenatal generative force" - such that yin qi is just "premature" yuan qi.
What do you mean by ‘driving the fire’? 
Answer It is the positive fire as will be explained in Chapter 
6. Chapter 4 has already dealt with gathering the microcosmic outer alchemical agent in order to return it to the 
stove (in the lower abdomen); since this agent is still not yet 
sublimated by fire, it can drain away like tea poured continuously into a cup which overflows and spreads outside. 
This positive fire can transmute the agent in the stove into 
vitality (in order to stop its overflow).
And so it is the third eye that actually builds up the yuan qi:
the psychic strength to develop, expand and unite into one 
whole reaching the core of the brain where it transmutes 
the (microcosmic) outer alchemical agent (already gathered 
there) into life-preserving true vitality;
The microcosmic sublimation of vitality....to raise positive fire
So here again we have vitality or qi as fire.
heart (the house of fire) by driving his mind 
into the field of concentration so as to still and disengage 
it from sense data.
So the heart is the shen but it is 
powered by the liver as the yin qi - and so with the eyes open this goes
 out of the eyes. So the inner fire is the alchemical process of 
reversing this loss - and uniting the shen  and the yin qi of the shen 
back with the yang qi (the inner fire) - of the kidneys. So then the yin
 qi then restores the yang qi and through purification and cleansing - 
creates the yuan qi.
the element of fire in spirit 
goes down to scorch the element of water in the lower abdomen which will be transformed into steam that will 
soar up linking the heart and lower abdomen. When he 
wakes up and opens his eyes, spirit returns to his organ of 
sight thereby disengaging the heart from the lower abdomen which will not reunite even if he starves for a week. 
So
 this is the yin qi in the shen - and the steam is the increased qi 
created from meditation - with the eyes open this does not happen.
If the outer sun and moon 
do not mingle their lights the inner water and fire do not 
‘copulate’ and prenatal true vitality cannot manifest.
So 
the outer sun and moon means the left eye and right eye - need to be 
rotated with the eyes closed - the inner water and fire is the heart and
 kidneys.
If 
they are left to themselves to follow their postnatal course the 
element of fire will remain dry and that of water will 
continue wet, with the former soaring up and the latter 
going down, both running in opposite directions. If water is 
not scorched by fire it will not evaporate to become steam 
that soars up.
So the "outer agent" gathered wrongly - 
is the evil fire of passion - with the sun and moon being disconnected -
 the left and right eye.
It will...
the 
most you can expect is to improve your health by eradicating 
all ailments.
So that is the DIFFERENCE between the inner 
fire as "yang qi" and the TRUE inner fire as yuan qi from cleansing and 
purification.
The inner fire as yang qi has the power to clear
 out yin qi blockages to heal the body - but it is not the real 
spiritual energy of the yuan qi.
The outer agent which you have gathered is an 
illusory false one created by wrong thoughts; hence the 
nocturnal emission. This illusory agent is the generative 
fluid which contains the evil fire that develops when it is 
aroused by the vital force.
So the qi activates the evil fire - but it is still just yang qi as inner fire and not the true inner fire.
The latter is like a ball of fire, the size of a 
bullet, in the lower tan t’ien centre which will become hot 
causing the root of the genital organ to vibrate and set 
prenatal vitality in motion.
True inner fire.
The light of the eyes directed downward is positive
So that is to build up the yang qi -  or positive qi.
Lowering the fire (to cause the negative fire to retreat so 
that the positive yang develops fully
to the heart as the vital breath of the element of fire
If the element of fire is strong in the heart 
it will scorch the blood; so the practiser should avoid excessive talking and thinking to rest his heart. This restfulness 
will invigorate spirit and body, for spirit withers in disturbance and thrives in stillness
This is the proper time to stop fire (produced by 
regulated breathing)
So at the end of the practice - 
external breathing is no longer used - only the qi is moved with the 
spirit ... but there is STILL internal heat.
Hence the divine 
mirror which is achieved only after positive fire has transmuted the demons into prenatal (divine) spirit.
So here - the fire is not the same as the spirit...
look inward to produce divine fire there. With the fire 
of positive spirit in the head, the practiser should concentrate 
on it in silence so that the fire above will descend and the 
fire below will soar up
And so the Qi or vitality has to surround the spirit..
This 
continual sublimation will result in deeper concealment 
of the spiritual fire in the light of vitality so that the positive 
spirit will be kept in its original cavity (tsu ch’iao).