Pathfinder's unique magical ability is, as its name suggests, the ability to locate objects and people. While it can certainly do this on the plane it is located, it is suggested by its Serioli name that it can find the path to whatever object is desired by its wielder, no matter that object's location. (Something about the final 'tsu'.)
Pathfinder is linked in ancient history to another of the Great Weapons, Godslayer. After Pathfinder disappeared and Godslayer was partially disassembled by the Gods, it was long said that the two weapons would emerge again into the world, and that the discovery of one would presage the return of the other.
The recent history of Pathfinder is rather complex, but is detailed in Dragon. In essence, the weapon was for a long time hidden within another sword, which was in the possession of Baritt. Pathfinder enabled Baritt to accomplish many great deeds he might otherwise not have, contributing to his wealth and power; however, he may not have been aware of its true nature. After his death, the weapon was stolen by Fornia.
Morrolan e'Drien, who had been responsible for the weapon and had expected it to be stolen, went to war with Fornia to avenge the insult, resulting in the Battle of Baritt's Tomb. After the battle the greatsword came into the possession of Sethra the Younger, who eventually traded it to Aliera e'Kieron in return for the sword of Kieron the Conqueror.
On the subject of Pathfinder's return being linked to Godslayer's, note that Aliera's soul and Godslayer's most unique component (Spellbreaker) were kept side-by-side in matching cases, in Loraan's lab, until a certain Vlad came along...
- See also Speculation:Great Weapons.
The Serioli name of Pathfinder is translated as Artifact-in-sword-form-that-searches-for-the-true-path.
It has been suggested by a particular Serioli that rather than "true path", the phrase would be better expressed as "an object of desire when the path is true". He explains that "path" is made abstract by the final "tsu".