The most common sentiment from Hiroshima survivor accounts is that they thought that a (regular) bomb (or bombs) had been dropped, and happen to hit their house/neighborhood. One also gets the sense that over time they gradually realized that something much larger had happen, that the entire city was affected. But from the ground it was very hard to figure anything out — the destruction was massive, the fires and smoke were extremely obscuring. Most of their efforts of course were not focused on figuring out what had happened, but trying to survive, find family members, figure out what to do next, etc.

Separately, it should be noted that the trope of an "atomic bomb" far predated Hiroshima. The basic idea of creating a super bomb based on atomic energy goes back to the 1910s and was a sci-fi staple by the 1920s and 1930s. So it was not so totally unheard of as you might think.

For survivor accounts, John Hersey's Hiroshima (1946) is the classic book, and a highly recommended reading. It is short and powerful. On the "pre-history" of nuclear weapons, Spencer Weart's Rise of Nuclear Fear (2012) is one of my favorites on the subject (in its early chapters).