Generating servo signal in atmega2560
Since the question asks for working AVR code for servo control, this article, though written for the ATmega32 microcontroller, would be an excellent resource. 

On an Arduino board, the primary clock typically used for the Timer/Counters 0..n is the crystal on the board, typically 16 MHz, though some Arduinos / clone boards use 8 MHz or 20 MHz crystals as well. Section 18 of the datasheet addresses selection of clock source / prescaler from either external or internal clocks.

You do have the option of using the ATmega2560 "calibrated internal oscillator", essentially an inbuilt RC timer, but that lacks precision / stability, as might be needed for the servo signal, depending on the application. To use the internal oscillator, set CKSEL3:0 to 0010. From Section 10.3.1 of the datasheet: 

The device is shipped with internal RC oscillator at 8.0MHz and with the fuse CKDIV8 programmed, resulting in 1.0MHz system clock. The startup time is set to maximum and time-out period enabled. (CKSEL = "0010", SUT = "10", CKDIV8 = "0").



An additional suggestion:
If precision of servo control is desirable, then instead of using Timer0 which is an 8-bit Timer/Counter, one of the 16-bit timer counters (1, 3, 4, and 5) would be a preferred option.