The final act of the game takes place on the rollercoaster of the damned. Guybrush will travel between a set of dioramas in a coaster car. With a little timing he can jump out of the car and explore each diorama, and jump into the next car when he wants to move on.
However, if Guybrush loiters at one diorama too long LeChuck will find him and throw a fireball at him. Luckily Guybrush will always manage to escape in a coaster car.
The goal here is to create a bomb and use it to defeat LeChuck. The bomb needs two components: an explosive charge and a fuse. And then you need to find a way to light the fuse.
Finding the explosive charge is easy enough, it's a keg of rum. You can find it on the pirate ship diorama.
As for the fuse, you need two components, a rope and some oil. The rope can be found in the three headed monkey diorama while the oil is in the lamp in the LeChuck diorama. Remember to blow out the flame of the lamp first!
With the components gathered, it's time to place the bomb. The correct location is the snow monkey diorama. Put the keg under the arm of the monkey and apply the fuse.
Now you just need to light the fuse. But you don't have a source of fire. However, LeChuck is all too happy to shoot fire at you. He won't aim at the fuse tho. Note that there is a time window where he readies to fire. That's your cue to pepper him. As in, grid some pepper in his face. He will sneeze and accidentally hit the fuse.