In tex file:
Toks\"{o}z
It produces

It is difficult to see in some editors, but in the first case you have \" acting on o, in the second: \' acting on ', hence the strange result.
\documentclass{article}
\begin{document}
Toks\"{o}z
Toks\''{o}z
\end{document}

BTW: your question gives an interesting example, why " and '' should never be mixed. Improper usage of " as a quote does not give so visible result.
" to '' (Format -> Smart Quotes). I always turn this off from the Preferences, but some people clearly find it useful. (This happens even if you type in " using the standard input method, so you may not be aware of it.)
– Joseph Wright
Jul 03 '14 at 05:54
Maybe that's very naive, but why not simply input direcly ö in the editor?
\documentclass{article}
\usepackage[utf8]{inputenc}
\usepackage[T1]{fontenc}
\usepackage{lmodern}
\begin{document}
Toksöz
\textsc{Toksöz}
TOKSÖZ
\end{document}

I just found out why this happened. In the TeXworks editor I use, the original setup is: "Format"--> "Smart Quotes"-->"Tex ligatures", after I changed the setup to: "Format"--> "Smart Quotes"-->"None", then it works as expected !!!!
" key. Changing Smart Quotes on or off doesn't go through your document and replace existing " characters.
– cjm
Jul 03 '14 at 07:38
\ and, if so, leave the " alone.)
– David Richerby
Jul 03 '14 at 10:47
\documentclass{...}and ending with\end{document}. In this case, I can't reproduce the problem with the code you've provided; it works as expected and produces a properö. – Sean Allred Jul 02 '14 at 23:49"but not strange unicode madness in case you have copied it from a website etc. such as''– percusse Jul 02 '14 at 23:52