Collect the hammer and chisel from the top of the barrel at the bottom of the screen between the old woman selling vegetables and the man dancing in a jester's hat. Take them to the blacksmith in the alleyway between the 2 aforementioned characters, and ask him to sharpen them. You can get them sharpened for free by doing a sexy dance for him.
Take the sharpened tools to the statue outside the pub with the beer keg. Use the tools on it, and choose the "an expression of your inner turmoil" option. The statue will be transformed into a Boschesque nightmare, and the achievement will unlock.