How much renter's insurance (liability) should I purchase?

That's the way that I initially understood it but then I was told that if I cause a fire for instance, and burn down the house, then I would need the liability insurance to cover it. If that's the case, WTF is the home owner's insurance for?

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if I cause a fire
well if you negligently cause a fire, I'm sure the landlord's insurance might try to recover some of their cost from you

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This. Insurance companies aren't dumb. If you cause a grease fire, the landlord's home policy will fix the home and then sue you.
That is what the liability insurance protects. Lawsuits against you.

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So I should get enough to cover the cost of replacing the dwelling then right?

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Technically, the liability coverage is protecting you from 3 things.
1) garnishments against your wages
2) judgments against you (affects your ability to buy, refinance, sell real estate)
3) your banking assets

Young people without much could carry no insurance. Attorneys are generally pretty smart and aren't going to waste resources suing a poor person.

If you have anything to lose, start there. Technically, you should think more about how much you are willing to spend to protect your assets than how much damage you can inflict.

The difference between 100k and 300k liability might be $25/yr. The difference between 300k and 500k might be another 35/yrs. How much is it worth to you to not worry? Are you a pretty responsible person (not prone to grease fires?)

I have renter's insurance to cover any of my personal belongings that could be stolen/lost in fire. I haven't worried about liability insurance as a renter.