Valyrian steel was invented in Valyria and was used to make weapons and various other items of unparalleled quality. Being spell-forged steel, it is the spells and magic that make the steel special.
Valyrian steel was manufactured in the Freehold of Valyria with dragonfire before the freehold fell. Valyrian steel blades are lighter, stronger, and sharper than even the best castle-forged steel, and feature distinctive rippled patterns similar to Damascus steel, the mark of steel that has been folded back on itself many thousands of times. Most Valyrian steel blades in Westeros are treasured heirlooms of noble houses, each with its own name and storied history. Valyrian steel keeps its edge forever. Valyrian steel was always costly, but it became considerably more so when there was no more Valyria, the secret of its making lost with the Doom.
Only the greatest weaponsmiths can reforge swords from existing Valyrian steel, making those remaining weapons highly treasured and extremely rare. The blacksmiths of Qohor claim to know how to reforge Valyrian steel, and Tobho Mott did reforge Ice at the request of the Lannisters, in King's Landing.
List of known Valyrian steel blades
Blades known to still exist:
- Heartsbane, the ancestral two handed greatsword of House Tarly, currently in the possession of Lord Randyll Tarly.
- Lady Forlorn, the ancestral sword of House Corbray, it is currently in the possession of Ser Lyn Corbray.
- Longclaw, the ancestral Valyrian steel bastard sword of House Mormont. Currently in the possession of Jon Snow.
- Nightfall, the ancestral blade of House Harlaw and currently wielded by Ser Harras Harlaw.
- Oathkeeper, one of two Valyrian blades reforged by Tobho Mott from Ice. The blade was made for Ser Jaime Lannister, but he has given it to Brienne of Tarth for use in her quest to locate Sansa Stark. The blade was given its name, Oathkeeper, at that time.
- Red Rain, the sword of House Drumm, which was stolen by them in a raid. Given the name and coloring, possibly the ancestral sword of House Reyne
- Widow's Wail, one of two Valyrian blades reforged by Tobho Mott from Ice. The blade was made for King Joffrey Baratheon as a wedding gift by his grandfather, Lord Tywin. Where it was given its name from the shouted suggestion of an unnamed guest. Following Joffrey's death, ownership of Widow's Wail has presumably passed to his younger brother, King Tommen.
- The dagger with dragonbone hilt wielded by Bran Stark's failed assassin, and currently in the possession of Petyr Baelish.
- A Valyrian steel axe reputedly possessed by House Celtigar.
- Valyrian steel Arakh owned by Caggo.
Blades with known fate:
- Ice, the ancestral two handed greatsword of House Stark. Following Eddard Stark's execution in King's Landing, it was melted down and reforged into two longswords(those being Widow's Wail and Oathkeeper).
Blades with unknown fate:
- Blackfyre, the sword of Aegon I Targaryen. Carried by all Targaryen kings untill Aegon IV, who gave it to his bastard Daemon Blackfyre, who rose in rebellion against the Targaryens, taking the sword's name for his house. Its whereabouts are currently unknown.
- Brightroar, the ancestral sword of House Lannister, lost when King Tommen II Lannister of the Rock sailed to Valyria and never returned.
- Dark Sister, the sword wielded by Visenya Targaryen. The last known owner was Bloodraven.
- Orphan-Maker, the ancestral sword of House Roxton.
- Vigilance, the ancestral sword of House Hightower.
- A very small number of Maesters have Valyrian steel links in their collars, representing their study of magic and occultism. Among them are Maester Luwin and Archmaester Marwyn. Marwyn also has a ring, a rod and a mask of Valyrian steel.
- Dragonbinder, a Dragon Horn banded with red gold and Valyrian steel.
Valyrian steel blades were scarce and costly, yet thousands remained in the world, perhaps two hundred in the Seven Kingdoms alone.
Valyrian steel is a fantasy metal. Which means it has magical characteristics, and magic plays a role in its forging. 
Valyrian steel was always costly, but it became considerably more so when there was no more Valyria, and the secret of its making were lost. 
References and Sources
- A Game of Thrones, Chapter 2, Catelyn I.
- Producing Valyrian Steel. (March 11, 2001) So Spake Martin
- Game of Thrones, Season 4, "Two Swords".
- A Storm of Swords, Chapter 32, Tyrion IV.
- A Feast for Crows, Chapter 19, The Drowned Man.
- A Storm of Swords, Chapter 36, Davos IV.
- A Dance with Dragons, Chapter 25, The Windblown.
- The Princess and the Queen.
- A Clash of Kings, Chapter 28, Bran IV.
- A Feast for Crows, Appendix.
- A Feast for Crows, Chapter 5, Samwell I.
- A Dance with Dragons, Chapter 7, Jon II.
- So Spake Martin. The Process of Making Valyrian Steel. (November 06, 2002)
- So Spake Martin. On Valyrian Steel and Twist Endings. March 16, 2008