Demon Stiletto is a rapier of which only Rose can use. This weapon is only located within the Shrine of Shirley, specifically inside one of the chests in the treasury room behind the battle zone of Drake the Bandit . This weapon can inflict with a given probability the status ailment Fear upon a single target.
This weapon is very beneficial and highly recommended to use for the remainder of disc 1 and some of disc 2 until you can purchase or retrieve the Shadow Cutter. Fear can severely change the tide of battle when enemies do half damage and take one and a half times more damage.
However, you shouldn't rush out of the shrine immediately; there is a few hundred gold in the same room.