Kaileena gives this sword to the Prince. Its purpose is to serve as the "key" to the Mechanical/Clock Tower and the Garden Tower. Kaileena also mentioned that the sword, along with the Lion Sword, was cursed. Kaileena, assuming the prince may come, had her architects create a lock which would be unlocked with the serpent sword. She cursed the lock that when the key sword (i.e the serpent sword) was inserted, the key holder will be cursed with unluck until he got rid of the sword. It is advisable to finish the Garden Tower after getting this sword, so that you get the Lion Sword before you go to the Mechanical Tower.