The Knife of Set is described as a chipped and sharpened stone blade. Its evil is apparently inherent because Max was able to recognize this from just a glimpse.
The knife is a cursed blade that had once killed Osiris, a god, and it works similarly to the Gae Bolga: any wound that it inflicted would not close and would not stop bleeding. The bleeding can be temporarily stopped through the use of the Old Magic. The Fomorian was able to close it, though it seemed to cost him a large amount of strength. The dragon Ember was also able to reverse the effects of the blade, although they returned once Max was no longer near him.
Similarly to the Gae Bolga, it craves blood, but it does not care whose blood it takes.