The Red Sword is a +3 Long Sword made from the mithril-fused spine of a ancient red dragon with a mirthil blade

a. Radiates an aura of light that can be turned up (to bright, continual light) or down (to a dim glow) by twisting the bottom vertabrae
b. 3x per day, it can ignite and deal an extra d6 fire damage - lasts 1 turn (10 rounds)
c. Once per day, throw a fireball (5d6)

As per Jarl Dag Dalby:

"This is the Red Sword. It is one of my family's greatest heirlooms, but I am willing to give it to the Elven King in return for his aid, with the hope that we may someday return the favor and recover the sword in the years or generations to come. It is made by dwarven smiths in the old country from the mithril-fused spine of an ancient red dragon, and has a mithril blade."