The Forge is a location for creating a Sharp chocolate sword and turning it into one of three more powerful swords.
You can only pick one sword type, and you can not change this in normal gameplay (only in a circumstance after you beat the final quest). Enchanting it with different items gives different results: health potion (Sword of Life), fire scroll (Sword of Flames) or Imp Invocation Scroll (Sword of Summoning). Arguably the best sword for late game is the Sword of Flames since much of the time you will be forced to be invulnerable.
"You now have the Sword of Flames ! Your sword is covered by a permanent blaze, damaging your enemies more than ever. "