Damascus steel was the name given to the metal used to make weapons with mythical qualities. A damascus steel blade was said to be able to chop through normal blades or even rock, without losing it's sharp edge.
The properties of steel mean that it can be either hard and brittle or soft and strong. When making a weapon such as a sword it was vitally important to create the correct ballance of hardness and strength. The harder the steel, the sharper the edge could be. However, such a hard sword was likely to break if struck firmly, such as would happen when striking another sword in combat.
Many of the best swords actually used a combination, where the edge was hardened to a greater degree than the rest of the blade. This meant that the sword was strong and sharp, but when struck, large portions of the blade would break away.
Recently a metallurgist and a chemist have claimed that they have recreated the process required to create damascus steel, but even they do not understand how it really works. Apparently 1 in 4 batches fail.