An article or proposal review should present a balanced picture of the document, reflecting both its strengths and weaknesses. You should not be shy about reporting flaws in the paper, but it is also your responsibility to balance these criticisms with a discussion of the merits of the paper. It is not your responsibility to edit the article (although the editor and author will be grateful if you point out typographical and grammatical errors), or to rewrite the article to correct conceptual errors. Rather it is your responsibility to make an assessment of the quality, novelty, and importance of the article, and to report to the editor on both the good and the bad.
The journal or funding agency will provide you with instructions on any specific information or proceedures they would like to have you follow. Each organization that solicits reviews has slightly different interests and requirements, so be sure to read the information that is provided to you when you are asked to prepare a review.
Typically a review will include the following information:
Most reviews are very short (and may be as short as one or two paragraphs), but in some cases they will be several pages long. It is typically easier to review better papers, and it is often the case that the most difficult reviews to write are those where there is some aspect of the work is very good, but where there are also major flaws in the paper. It is thus important that you concentrate on the major issues in the paper, and not allow yourself to be distracted by minute details.
Remember that the time you spend reviewing documents is the price you pay for asking others to review documents you have written. An arbitrary or capricious review can do great damage, and you have an ethical responsibility to prepare a careful review.
Links to review instructions:
COPE (Committee on Publication Ethics): http://publicationethics.org/about
NSF peer review of research proposals
NIH instructions for peer review: http://cms.csr.nih.gov/PeerReviewMeetings/ReviewerGuidelines/
NASA guidelines: http://www.nasa.gov/audience/foreducators/son/about/F_SON_Peer_Review.html
USDA ARS guidelines: http://www.ars.usda.gov/Main/docs.htm?docid=8041