Excalibur is an unique tier 5 sword which can be acquired on the island of Avalon. This island itself can only be reached after by completing The Isle of Apples quest. The sword itself can be found in the grave of King Arturias (or King Arthur). The sword can only picked up with some effort and the thegn of Skjern will accidently cut him- or herself during the process (injury to the arm). The inhabitants of the island see this as a sign that you are not the successor of King Arthur and they will attack your party before you can leave the island.
The sword can be only be wielded by the thegn if he or she has conquered Northumbria, Pictlands and Orkneyjar.
Excalibur can be compared to a sword made with the crafting skill of the highest quality, but it has the unique ability that attacks from the wielder of this sword can't be blocked by shield. As such, it should be given to a party member who can deal a lot of damage and uses a sword frequently.