Warning! Make sure you do this quest before doing Strictly Business. Red is a main part of this quest, but she is also one of the four people you need to enslave for Strictly Business. Slaving her before doing this quest will void it. You can have Strictly Business active (and should, so then once you finish this quest you can just enslave Red right away).
As soon as you enter Big Town, one of the residents should talk to you and have you speak with other residents to find out about the missing people. Ask around and you will be sent to the Germantown Police HQ. You will need to break Red and Shorty out of the HQ. Once you get back outside you can fast travel back to Big Town to end the quest.
See Big Trouble in Big Town for more specific info.