The Eyelander's curse will start you off with 25 health less than normal, but each time you make a killing blow with it your enemy's head will be lopped off and you will gain 15 more health, plus a small boost in speed. This bonus maxes out at 4 heads, which you can keep track of with the head counter. Other players see your decapitation buff by the fire in your eye. The sword also boasts a larger range than the average melee attack.
Bonus with The Chargin' Targe
The Eyelander on it's own does not deal any critical hits. When both The Eyelander and The Chargin' Targe are equipped it is able to deal crits when used together with the Targe's charge attack.
A mid length charge deals a mini-crit while a long distance one deals a full critical hit.
The Eyelander is awarded for achieving Milestone 2 (Complete 11 of the Demoman achievements)