Muspelheim is the realm of fire and one of the five regions of Asgard. It is never physically shown, but is briefly referenced several times, notably during the Chapter 6 Sacred Phase  in Valkyrie Profile. The dragon Fafnir dwells there and holds the Accursed Flame Gem, which the Aesir need to break into Jotunheim. Therefore, Freya sends an Einherjar platoon to retrieve it.
In Norse mythology, Muspelheim is the home of Surt and the fire giants. It is one of the nine worlds of Yggdrasil, rather than being a part of Asgard . It is said that, during Ragnarök, Surt's clansmen will ride out of Muspelheim and destroy the world with fire.