It increases linearly with skill level, up to a max of 1-20 dmg/hit. Also, it's the fastest weapon in the game and can damage any creature, regardless of material requirements. Plus, you can uppercut and roundhouse kick people, what's not to love? Personally, I kind of like it, even as just a backup weapon skill.
If you become a werewolf, you'll be unstoppable. (I mean that in the super-unbalancing awesome sense)