A miscellaneous item with no practical uses, the mutated toe is exactly what it says on the tin.
In order to acquire the mutated toe, the player must spend a certain amount of time in toxic waste without protection, causing the mutation to occur. The toe can then be removed and acquired 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 that using the toe on Frank Horrigan is a one hit kill, but it's only a joke. It will remove three hit-points - just over 0.3% of his total health - but it'll also put you within close range of the Enclave brute.
In a rather humorous note the game responds with "You just ate your fucking toe!", whenever you consume it.