In Megaton, Lucas Simms will ask you to disarm with the bomb in the middle of the city or Mister Burke will ask you to detonate it. Either way you go, you need a minimum explosives skill of 25, but it is suggested it be closer to 50. If you disarm it, find Simms again to end the quest. If you detonate it, head to Tenpenny Tower to set the bomb off with Burke and watch the explosion. Detonating the bomb will automatically give you the most negative karma possible in the game.
Note: If you choose to blow up the town, make sure to get the bobblehead out of Simms' house before you do so.
See The Power of the Atom for more specific info.