Oh... you need the S Rank Medal to use the Magical Fingertips properly. To get it you have to do lots and lots and LOTS of side-quests, like the friendly monster quest, beating Ozma (!!!!), the chocobo quest, etc, etc. Then you talk to the four-armed man in Daguerreo, follow him and get the medal. Then talk to the old man in Daguerreo's library, and he'll ask for the fingertips, yada yada. Hand 'em over, get the sword, equip it. Good old Steiner...