a relay is a low current to high current switch, meaning, you use a low current switch to connect a high current source to a high current demand.
think of it like a little tiny wiry guy who sees an indicator light and then tells a blind burly guy to lift something heavy. the big guy cant see the indicator, and the wiry guy cant lift the heavy thing, so they work together each doing what they can do.
on a std automotive style relay there are 5 pins.
pins 85 and 86 are your low current switch, your wiry little guy. in proper design you would put the sender wire on either 85 or 86, and then the OPPOSITE polarity of that sender on the other one. so if your temp sender is a grounded type switch you would attach it to 85 (or 86, pick one), and then attach 12v+ to the other. there is a coil inside that when it "sees" both 12v+ and ground on the pins 85 and 86, it energizes and closes the high current contacts.
pins 87 and 30 are your high current contacts. on 30 you put the wire to the high current device, and on 87 you put the high current supply, usually 12v+. you can reverse these in that application, using 30 as the input and 87 as the output, but I feel it is poor design because 87A is the NC (normally closed) output from 87, and if you use 30 as an input and need an NC output it will never work.
so looking at your relay, 85 is a blue wire from the sender, 86 is an orange wire. 87 is the output to the fan (that poor design decision I talked about but doesnt matter here because there isnt an NC connection) and 30 is the supply from fused 12v+.
you say you are melting the sender wire, did you hook up your trigger wire for manual operation yet? it is possible that you have hooked up a 12v+ trigger to a (-) sender, which would short it and melt the insulation.
if you have not hooked up a manual trigger yet, there isnt a lot of reason why the low current sender would be melting insulation, I would suspect a bad ground on the sender body if it is a (-) trigger sender, or a bad relay that is bleeding 12v+ onto the sender wire.