The Sword was an item in Penguin Chat 3. It was carried on a ninja's back. It was placed there because it is common for a ninja to use a sword. It did not have a special motion or other property. It was not available in Club Penguin itself.
The choice to not bring the Sword into Club Penguin was because Card-Jitsu was meant to be more of a "comedic game", rather than serious ninja fighting.
While this item was never released in Club Penguin, several other swords have been released since, the first being the Thunder Blade.