In order to acquire the mutated toe, the Chosen One must spend a certain amount of time in toxic waste without protection, causing the mutation to occur. The toe can then be amputated and acquired as an item in a medical center equipped with an Auto-Doc.
It is important to note that having a mutated, unremoved toe will result in failure of the Vault City citizenship test.
Some non-player characters claim the toe is a one-hit K.O. device for destroying Frank Horrigan, but that is only a joke, although it does lower his max HP by 3 points.
In a rather humorous note, the game responds with "You just ate your fucking toe!", whenever it is consumed.
The lump of brain in the Fallout 3add-onPoint Lookout makes a direct reference with "you feel a terrible sense of loss." The cure research note in The Pitt also makes reference to the item.
Behind the scenes
According to its effects, the mutated toe seems set up to temporarily give the Awarenessperk.