So I opened it in photoshop, using the Move tool (V) I dragged it to my UVW-map:
Its to big, so using the Transform Tool ( Ctrl+T) I scaled it down.
I used the top left little squarre and holding down shift I just dragged.
Shift helps to keep it uniform, width & height are being kept the same scale compared to each other.
Once content with the size hit enter, if your not happy hit Esc to leave the Transform tool.
Okay, now I'm going to add the sharp edge of the blade. To that quickly and easly, I used the Pen tool (P)
Make sure it sets to Paths, you'll find that at the top left of your menu bars:
Then follow the shape of your blade, like so. Just click around to set a point and continue to set more points to create a shape like your blade.
You don't need to close your path, but since I got a round blade I'm going to close it
Now where going to setup our Brush (B)
Just right click anywhere on your map. You should get this handy menu:
Pick a brush with really soft edges, set it to a smaller size, I used 9 pixels.
You could use differant sizes, depending on your model really.