The sword is the only power that can harm Aku. Jack's sword can only be used for good, but in the hands of evil, it cannot harm an innocent. This was proven when Aku managed to steal the sword from Jack and he could not use it to harm the Samurai, an innocent. This was something that Jack himself had forgotten. Very few characters other than Jack use the sword in the series, most notably the King of the Spartans in "Jack and the Spartans" after his own sword was broken and Jack threw him the sword to protect himself.
The sword has the power to cut through any mundane substance, given that there is enough force behind it (Jack was unable to cut through the tough armor of the Ultra-Bots in episode XVIII without artificial strength enhancement). Likewise, similar magically enhanced objects also prove immune to being cut by the sword (for instance, the Scotsman's blade was imbued with magic runes and proves impervious). The sword's main purpose is to destroy Aku and defend the innocent; however, one very important aspect that Jack had failed to consider in his first battle with Aku, was that the sword is nothing without it's wielder.