Hiccup's Dagger is a knife that Hiccup uses in How to Train Your Dragon 2 for sharpening his pencil. It is likely that he also uses it for cutting and chopping objects, or as a weapon.
In the film How to Train Your Dragon 2, he only uses it once. It is also the only time he is seen using it in the entire franchise.
He keeps it in a specially made holster that he keeps strapped to his arm, in much the same manner he keeps Inferno strapped to his leg.