Link's primary weapon in most of The Legend of Zelda games (the Master Sword did not appear in the N64's The Legend of Zelda: Majora's Mask).
In Ocarina of Time, not only is this an important weapon, but Link uses it as a key that lets him travel back and forth through time. The sword is found inside of the Temple of Time. Go up to the altar and play the Song of Time. The three gems Link spent the first part of the game collecting (the Kokiri Emerald, Goron's Ruby, and Zora's Sapphire), will activate and place themselves onto the altar. This will open up a wall leading to the shrine where the Master Sword rests. By pulling the sword out of the stone where it has been placed, Link becomes the Hero of Time.
Unfortunately, this has some nasty side effects. For one, Link is too young to become the Hero of Time (he's roughly 10 years old at this point), so he is sent to the Temple of Light, in the Sacred Realm, to sleep for a number of years until he is able to become the hero as was foretold by the Great Deku Tree. This wouldn't be so bad, except that it also opened up the gateway into the Sacred Realm, so Gannondorf was able to enter and steal the Triforce. However, as Gannondorf was not pure of heart, the Triforce split into it's three parts, and the Triforce of Courage and the Triforce of Wisdom disappeared, leaving Gannondorf "only" with the Triforce of Power. Since our young hero was busy sleeping all this time, Gannondorf pretty much had free reign over Hyrule for quite a few years, and by the time Link wakes up, everything is a real mess (zombies all over the place, ghosts running wild, giant black castle floating in the sky, etc).
Link can return to his younger days by placing the sword back into it's stone in the Temple. This is most useful, as there are many things Link can't do in the later time period, like planting magical beans and using masks. In addition, part of the Spirit Temple requires you to use young Link to get into some tight spots.
The Master Sword deals twice as much damage as the Kokiri Sword. It is also the most powerful weapon Link has that he can use along with a shield - the Megaton Hammer and the Biggoron's Sword both require two hands to use.