Was in school when it happened. My first year over in the US before going back (and then coming back again) so I thought it was a really cool thing in taking time out of the day to put all of us in the library to watch it on TV. It was also the 80s, so the 'go USA' thing was in full force and this was kind of a crowning moment from what I remember, as everyone, everywhere was talking about it for what seemed like months beforehand.
You could definetly say the launch, prior to takeoff, was an event.
When it blew up, even thought I was young, I knew something wasn't right. I can remember it still 'flying' and the possibility that whatever just happened was some space aged thing we just didn't know about (because basically none of us had ever seen a shuttle launch before), but seeing the multiple teachers in there look at each other at the same time with a slight panic on their faces told me everything I needed to know.
Took another 20-30 seconds before I think the majority of the other students figured out something bad just happened. The air went out of everyone like someone told you that Christmas was cancelled or something. I still find how its odd that I can't remember things from a year ago, but I remember details about what happened, where I was, dumb small stuff about that day.
Next 'big' event for me was 9-11.