The dusted criminal's dagger is a quest item that is found at the murder scene during the Murder Mystery quest. It is created by using a pot of flour on the criminal's dagger. This dagger cannot be equipped and is used to help gather evidence against the culprit during the quest. In the quest, you must obtain the criminal's fingerprints by using flypaper on the dusted dagger. You must do the same with the items belonging to the suspects. Then compare them by using a suspect's fingerprints on the criminal's fingerprint. When a match is found, the unknown print becomes the killer's print.
If you lose it, it will respawn in the same place as where you got it.