SYDNEY—About 4,000 people trapped by raging wildfires in an isolated holiday town took shelter on the shore and in boats, with the sky turning red and raining embers, as an already devastating fire season took a turn for the worse in Australia.

Macey Ellison, 18, and her family, who were holidaying in Mallacoota, in the southeastern state of Victoria, took cover in a friend’s small boat for more than four hours as the fire threatened the town. Ms. Ellison said they thought the boat was the safest option because they could…

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