In the Woody's Roundup game mode, found in the Toy Box, outlaws have erected an imposing dam that is preventing additional expansion of the town. In the Blow Up the Dam mission, you'll have to make your way to the dam and destroy it. Once the dam is no more, you'll unlock the suburbs area of the town, where you will find additional characters, missions and places to explore.
Complete the Build the Bank mission. Speak with Mayor Hamm again to receive the Blow Up the Dam mission, which opens a gate on the right-hand side of the store. Proceed past the gate and through the tunnel.
Look to your left to find a set of stairs. Ascend the steps and locate the target in front of you. Hit the target with a ball to lower the platform and continue down the path.
Proceed along the ridge and around the water. Throw a ball at the target near the powder kegs to create a platform. Jump to the platform, then to the ledge beyond.
Make your way along the ledge, hitting the targets along the path to clear your way. When you reach the vertical shaft, wall-jump up to the top to continue. The dam will be at the end of the path. Throw a ball at the TNT to destroy it and complete the mission.