Much about this unfortunate event has already written. Suffice it to say that on January 28, 1986 the shuttle Challenger and all seven crewmembers were lost when the vehicle structurally broke up due to severe aerodynamic stress. The break-up was due to cold weather, which caused an O-ring to improperly seat in its groove. As the flight progressed, the faulty O-ring allowed hot gasses to burn through the SRB casings. The burning gas cut like an acetylene torch into the aft hydrogen fuel tank dome of the shuttle's external tank (ET), and the SRB/ET attach points.
The SRB rotated around crashing into the ET's liquid oxygen tank. This caused complete break-up of the external tank, which threw the orbiter Challenger off exposing it to extreme aerodynamic stress. The Challenger broke up in large sections, including the forward fuselage containing the crew compartment.
The crew is believed to have survived the vehicle break-up, though the G-forces would have most likely rendered them unconscious. The crew perished two minutes later when the crew compartment crashed into the Atlantic Ocean at over 250 miles per hour.
The loss of Challenger led to many management reforms, and safety-related changes to the to the shuttle systems (see "Going To Work In Space" for more details). The Shuttle program stood down for nearly three years undergoing hundreds of modifications to the SRB joints, the Orbiter, and ET.
The reforms paid off when Discovery launched safely into orbit on September 29, 1988 carrying the TDRS-C satellite, and five astronauts.