In the house in the village with the Underdark entrance in its basement, use the bellows to light the blacksmith's forge. Use the now-lit forge (as you would the anvil), place the sussur bark into the unoccupied slot in the now-open crafting menu, and craft it. This will turn the coals' flames blue. Then, put the dagger (or other weapon of choice) into the crafting menu, same as you did with the bark, and craft it. A dialogue/cutscene will begin. It does not accept magical daggers, only regular ones.
