The suits of armor use two weapon skills, Aetherial Toxin and Edge of Death. If you time it right, you can defend against these weapon skills using the Ibushi Shinai's special ability. Every time you do this, you gain malice. Dying and zoning does not effect your malice. Once you have enough malice absorbed, wait for a suit of armor to die and trade the Ibushi Shinai to the ??? it leaves behind. That's how you get prizes.
The enchantment icon says something about absorbing magic damage or maybe magic defense bonus I can't really remember, it's something along those lines. And yes it is a charged item, you no sooner get the effect and it wears though lol