The Dagger of the Violet Crusade is a weapon specially crafted by the blacksmiths of the Violet Crusade. They are given to all joining members as a sign of their guild, and is a very good weapon. It is an artifact, so it will crumble if it's used for too long. It's best to put into a trophy room at a player owned house or not use it for the duration of time. Picking it up will get you closer to the (Artifactologist) achievement.
This weapon only drops from Kathryn if you defeat her as a challenge, with a 15% drop ratio. It is also buyable from the Violet Crusade, after reaching 5000 reputation by doing various tasks. Mages get a bonus by completing the  The Archmage Trial.