Hi Cap’n,
Most ships in SS tend to sink in a manner that many find unsatisfying; they usually just settle.
To sink them in normal play, you need to damage them below the waterline. To the dismay of our Titanic fanatics, the icebergs in SS are not particularly effective at doing that.
With some luck, you might sink a ship by dropping an anchor while she has way on her. Usually, however, she will heel over but not sink. She will usually right herself if you raise the hook. Again, she needs to be holed below the waterline.
You could run her into various objects in search of one that can inflict the proper damage.
The most reliable way to cause a ship to sink is with the sink trigger in the mission editor. If you tow her over the trigger, she might even drag the tug down as well.
Sinking is rather boring because ships do not break up, or capsize. They just..like, you know…sink.
The above pertains to deliberate sinking. From time to time, especially in MP, ships will fly through the air, roll over, etc. when you least expect it.
To answer the question in your topic title: Do it in deep water.
Regards,
Marty