When you use power attack, you subtract X from your attack bonus and add X to your damage bonus. X can not be larger than your base attack bonus.

Example A. Max Fightmaster is a level 5 fighter with 16 strength. Because of his class, his a BAB is 5. With no other enhancements, Max has a total attack bonus of +8 (BAB + Str bonus). Max maxes out his power attack and subtracts 5 from his attack bonus (he can't do any more than 5 due to the limit of his BAB). If Max successfully hits his opponent with his +3 attack bonus, then he adds 5 to his damage roll.

Example B. Bruce Lee is a level 5 monk with 16 strength. Because of his class, his BAB is is 3. With no other enhancements, Bruce has a total attack bonus of +6 (BAB + Str bonus). Bruce maxes out his power attack and subtracts 3 from his attack bonus. If Bruce successfully hits his opponent with his +3 attack bonus, then he adds 3 to his damage roll.

Some specific rules with power attack.
1. If you attack with a weapon you wield using two hands, you double the bonus to damage but the penalty to attack stays the same. In TOEE, equipping only one weapon with nothing in your other hand (including no shield) will automatically count that weapon as being wielded as two handed.
2. With the exception of unarmed and natural attacks, you cannot gain the benefits of power attack using a light weapon even if you wield it in two hands. You will still incur the penalty though.
3. The penalty and bonus last until your next turn. This means that after your turn is over, if you make attacks outside of your turn before your next turn (such as attacks of opportunity), those attacks will have power attack on.
4. Power attack is a pre-requisite to cleave and great cleave, both of which are excellent feats in TOEE.
5. The bonus damage from power attack is part of the weapon's critical multiplier.

More information can be found here: http://www.d20srd.org/srd/feats.htm#powerAttack