"I am the Shade Blade. My destiny is to serve thee until we are..." The sword pauses, "parted."
The Black Sword, also less frequently known as The Shade Blade (and in my own personal jargon as the Leet Sword) is one of the most powerful magical weapons in Britannia.
NOTE: Ultima VII: The Black Gate and U7pt2: Serpent Isle spoilers
Ultima VII: The Black Gate
The blade first appeared in Ultima VII's expansion disk Forge of Virtue.
In the city of Vesper, the Avatar and the Companions found the Lord British' ship The Golden Ankh, which the king had given to their own use. Setting sail for the first time, the adventurers found a new island right on the horizon: the Isle of Fire, recently risen from the depths of the ocean, with the volcanic activities still trembling the area.
On the Isle of Fire, the Avatar met Erethian the blind hermit, and was faced with multiple tests, each rather challenging to master.
The Test of Courage was most difficult of them all. In the end of the test, the Avatar faced the dragon Dracothraxus, whom the party managed to slay after a difficult fight. The Avatar dislodged a priced gem from the dragon's maw. Yet, Dracothraxus was not completely destroyed, as she was made immortal for the purpose of the test.
Retreating to consider this, the companions soon found Erethian's servant: demon Arcadion, who was bound to Erethian's mirror. Avatar promised to get Arcadion out of the mirror in exchange of Arcadion serving Avatar, and managed to shatter the mirror with the help of the gem - but Arcadion had made a mistake, and the gem trapped him inside.
Erethian was pleased to get rid of the demon servant, and helped Avatar to complete a magical artifact he had been working on: a magic sword. The Avatar finished the sword, but it was soon found out the balance was not quite correct. Arcadion, trapped in the gem, noted he could act as the balancing force. Thus, the gem was added to the sword, completing it.
With the sword, Dracothraxus' soul was finally destroyed and the Avatar completed the Test of Courage.
...
The sword is a quite formidable two-handed sword. It looks and behaves like your average talkin' intelligent sword right from the glory days of AD&D.
The catch is, Avatar and The Black Sword are bound to each other, Arcadion eternally forced to do Avatar's bidding. So, Avatar needs to always use The Black Sword henceforth. Of course, since the sword is quite easily the mightiest weapon imaginable, this isn't strictly a problem. And while Arcadion is clearly an evil creature who needs corpses, some more corpses and even more corpses to lie beneath the Avatar's feet, he doesn't really force Avatar to kill anybody (unlike certain other swords of this kind).
"Forgive me master, but I shan't be leaving. However, thou mayest cease thy speaking... if thou dost wish it."
Not only does The Black Sword do quite a lot of damage when used normally, but it also can be asked to kill an opponent instantly and noiselessly. There are some creatures that can't be killed this way (Arcadion can't be bothered to kill too weak opponents), but the sword is the only weapon in the game that can kill Lord British. Okay, so there are actually other ways to kill him, but none are as cool, epic and well-narrated as this.
The daemon responds, using your mouth. "This blade is thy doom,..." You spit the words, "Lord British!"
Batlin can't be killed this way, though. Damn the dramatic purposes.
In addition to killing things, the sword can also be used to make fire.
All in all, the sword is quite interesting. It has certain level of epicness in it, and is not quite as humorous as the Hoe of Destruction.
Ultima VII Part 2: Serpent Isle
The Black Sword is also the sword the Avatar starts with in the Serpent Isle. Regrettably, it takes a while to find the thing again, as it gets lost pretty early on...
So did the evil ninjaing of foes end here? Of course not. U7SI had two more stylish scenes in hand for the magnificent black blade.
Later, The Black Sword is found from the dungeons of Mountains of Freedom. Arcadion started showing certain signs of escapism, so Avatar makes a deal: Arcadion kills a near-indestructable mage for him, after which he's free to go.
The Black Sword then stays with the Avatar. After the Chaos Banes take over the bodies of Dupre, Shamino and Iolo, Avatar uses the flux analyzer to fix the sword, kills the banes with the sword (here's the one true Ninja Moment of the game), and traps them to gems, after which he has to somehow make his companions live again - but that's easy part.
The whereabouts of the sword are unknown. Avatar had the sword when he went to the Void with the three serpents, but he obviously had lost it by the time the Guardian tossed him to the isle of Pagan. Of course, Avatar could give the sword to his companions as well, but that isn't reflected in any way in later games either. The point is, the sword - and Arcadion - are gone in U8 and U9 (though apparently Arcadion makes a brief appearance in U9 if you use the fan-made dialog patch). U9 has apparently also a blackrock sword, but fans can only conclude that is not as cool as the real Black Sword.