With 10 Luck, it becomes an extremely potent weapon that will critically hit almost once every 4 to 5 hits.
However it has extremely short reach, about that of an unarmed weapon. even with a reasonable number of AP and a fast swing speed outside of V.A.T.S. It is one of the better low-level melee weapons, and can get around 3-4 strikes in V.A.T.S. It is affected by the melee damage bonus from Strength. The military issue combat knife is a rather common melee weapon in Fallout 3.
