In one of the Master Guide 2 card storylines, it is revealed that this sword is the actual body of "Guardian Baou". If "Warrior Dai Grepher" chooses the dark road shown in "The Paths of Destiny", he will encounter and defeat "Baou's" false body. He will then claim this sword as his new weapon, not realizing the horrible truth about it.
In that same storyline, "Warrior Dai Grepher" transforms into the "Dark Lucius" cards, which forbids the opponent's Monster's effects from activating when they are destroyed by battle. This card gives the equipped Monster the same effect, strongly implying that "Baou" is possessing them.
Coincidentally, Joey Wheeler encounters a "Red-Eyes B. Dragon" possessed by a cursed sword in Yu-Gi-Oh! Capsule Monsters. In a similar manner to how "Warrior Dai Grepher" is changed, Joey is merged with the spirit of "Red-Eyes" and becomes violent, attacking his friends. Unlike said warrior, however, he and "Red-Eyes" manage to break free from the sword's influence.
The altar beneath the weapon and the light descending above is similar to other "Guardian" related weapons: