The frost sword is an Elemental sword added in the Elemental swords update.
Upon spawning in, the frost sword will spew out frost particles. These frost particles appear to be emitting from the blade and will be shot around when the frost sword is spun very fast.
When it touches a ragdoll or object, it covers it in frost particles and lowers the touched object's temperature (similar to the frost power). The sword is quite effective at destroying ragdolls, as it weakens out doll body parts quite a lot when it freezes them, making it a lot easier to finish the doll off.
This is perhaps one of the most effective weapons in the game when used against ragdolls. It weakens victims severely before finishing them with ease.