This is the strongest, fastest weapon at your disposal. Even though you cannot block with it, you can still dodge and counter with it. You cannot use it against anyone that is in combat with you or aware of you to a certain extent. It can be used on anyone unaware of you and against people in combat that seem to be "sleepy" as I call it. They lower their weapon and look around, and then shake their head and rejoin combat. This gives you a few seconds to catch them off-guard in the heat of battle. You can also do this against the leaders of a group of people that point at you to signal for one of his men to attack you.
Later on in the game, Ezio can assassinate enemies below with an Air Assassination, a Double Air Assassination if the target is adjacent to another, by leaping from a platform, for instance a ledge onto the victim. However, is easily noticeable by Guards and will attack once they see you doing it, not only this but it also increases your notoriety. Thus making it a tough decision whether to double-kill for speed, or to be stealthy and pick off the guards.
Also the Hidden Blade gets yet another update further into the game, with the addition of the Poison Blade and the Pistol.