Hello.
The hammer does work. First you need to heat the blade in forge before start uncrocking the blade.
To go to forge area press 1 (at the keys above the letters in your keyboard), then you need to put the blade upon the coal (brick box).
It kinda works like in real life, more the heat more easily the blade bends. You can use the water baril to cool down the heat if it is too much hot.
Hope this help you!