The swords they're talking about are Shehai ("the way of the spirit sword"), swords of energy (pure Will) produced from the hands of the Redguard Ansei (swordsaints). Think of Jedi lightsabers, but more powerful.
http://www.imperial-library.info/dfbooks/b004_redguard.shtml
http://www.imperial-library.info/dfbooks/b004_redguard.shtml
And? You still can't "cut" an atom with your so-called "spirit sword". Atoms have to smash into each other to break apart, like in a particle accelerator.