Learn Icelandic: Er bíllinn skemmdur að ofan?

In this specific set of spatial adverbs, the word að indicates a perspective from a direction, rather than motion towards it. So að ofan literally means "from above". When describing an object like a car, looking "from above" refers to its top surface or roof, which is why it translates smoothly to "on top" in English.

If I wanted to ask if the car is damaged underneath, how would I change the sentence?

You would swap out the spatial adverb for its opposite. Instead of að ofan, you use að neðan (from below / underneath). The sentence would become: Er bíllinn skemmdur að neðan?

Why is the word for damaged spelled skemmdur here instead of just skemmt?

The word skemmdur (damaged) functions as an adjective here, meaning it has to match the noun it describes in gender, number, and case. Because bíllinn (the car) is a masculine, singular noun in the nominative case, the adjective takes the masculine singular nominative ending -ur. If you were talking about a neuter noun like húsið (the house), you would use the neuter form skemmt.

Can I use á toppnum instead of að ofan to mean "on top"?