The sword is, when inactive, a handle containing a large power source.
When activated, it is theorised that a large magnetic field in the shape of a blade is created, then filled with plasma. This field is strong enough to hold the plasma together while slashing at opponents.
The energy sword releases a quantity of energy on impact, primarily heat. This damages armour. The magnetic field makes the sword 'blade' as strong as a metal blade or stronger, and quite capable of going through metal, flesh and bone.