He is a lesser known character in the game who can be found in the Graveyard by Mimiga Village. He can only be collected after you talk to Mrs. Little in the Little house which can be found on the Outer Wall . If you are successful in bringing him home you can trade the Blade for the Nemesis which will in-turn unlock the Nemesis Challenge.
An option is to keep him with you instad of bringing him home. If you do this he will get a short line at the end of the game.