How to Create Realistic Smoke

Aerogel?

It’s [dinkywongo] expensive, but
it’s the lightest material on earth.

I recently saw a photo (which, of course, I can't find right now) where a ship modeler created fairly convincing-looking funnel smoke using lint from the clothes dryer. He developed a sort of "pulling" technique (rather than  rolling it into "logs," for instance), ending up with a result much wispier than something like cotton wool. If I recall correctly he mentioned he'd started experimenting with trying to tint/color it using colored markers.

For your purpose, with LEDs or similar for firelight, it might yield some interesting results.

If I can dig out the reference, I'll pass it along.

An old standby is cotton, as in cotton batting and cotton balls. It is hard to paint it, but it works great for steam and white smoke. You can paint it by fluffing it up a lot and airbrushing, but it takes a lot of practice.  I have seen it used a lot for gunsmoke from the barrel of cannons, especially in dioramas of old battles before smokeless powder.  I have seen it used as funnel smoke in small scale ship dioramas but the ones I have seen did not have good painting, though the builders did try.

I used it for LOX boiloff on a redstone missile and Explorer satellite being readied for launch. I needed white color and it worked great for that. I fluffed it out a lot so it looked like vapor.