the sword that was cut
The First Fractal was built to be the endgame melee weapon for the 1.4 update, then dropped during development. Its place went to Zenith instead, but the item itself was never stripped out of the code, so it still exists as a fully working weapon that nothing in the game can legitimately hand you. Its sprite sits close to the Terra Blade, which is the visual family the final design left behind.
what it does when you use it
Using it does not swing anything. It throws flying copies of your own character at whatever you point at, each one holding one of fifteen different versions of the sword, and the copies stream toward the cursor in a continuous barrage. The instant an enemy comes within thirty tiles, the barrage retargets onto it and ignores the cursor completely. Because the copies are built from your character appearance, every dye is stripped off them, a bug that was never fixed because the weapon never shipped. Since 1.4.5.0 the copies no longer draw the sword either, so what actually appears on screen is a stream of blank versions of you.
how it compares to zenith
The statistics are almost identical to Zenith. The only real gap is speed, where Zenith uses a use time of thirty against the First Fractal's thirty five. Both react the same way to melee speed bonuses: extra speed changes how many projectiles spawn per use rather than how many arrive per second, and does nothing at all to their travel speed. The First Fractal also cannot be reforged, so there is no prefix available to close the gap.
why you cannot keep one
The game actively deletes it. Adding it to a character inventory or research menu with an external editor removes it on the spot, and even when that cleanup is suppressed, dropping it on the ground or putting it into any storage container makes it disappear. It works normally in both single player and multiplayer while it is in your hands, which is the strange part. The weapon is finished. It is just not allowed to sit still.
why it was dropped
The stated reason is that it was not ready. The design complaint was that a weapon throwing player silhouettes does not read as melee or as an endgame reward, and that the silhouettes themselves were hard to parse because they change with whatever your character happens to look like. Watching it makes the point: the arm animates the way it does for a yoyo rather than a sword, and there is no clean line of attack to follow with your eyes.
names and leftovers
The name has been attached to two different scrapped weapons. The 1.3 version was going to be a melee answer to the Last Prism, and this is the 1.4 version. Final Fractal was one of the development names for Zenith, which is where the family resemblance comes from. In game the item has no display name at all and shows its internal key instead. One of its fifteen projectile sprites is a Terra Blade with a stretched blade and a shifted palette. It is also one of the very few unobtainable items Journey Mode will let you research, the other being the Bone Block.