The Wooden Sword is a weapon in Kingdom Hearts. It is wielded by Sora and Riku at Destiny Islands, and again by Sora at Hollow Bastion, when Riku takes the Keyblade. It is also seen in Kingdom Hearts Birth by Sleep as Ventus's practice weapon before Terra gives him the Wooden Keyblade. Also, a similar sword is seen in the back of the Usual Spot in Twilight Town.
Ventus used a Wooden Sword as his practice weapon. At this point, the blade of the sword has many nicks and dents in it from practice fighting. Noticing the damage, Terra bestows Ven with his Wooden Keyblade as a replacement.
On Destiny Islands, Sora, Riku, and Tidus would often use these toy swords to spar against each other. They would pass the time on their tiny island with friendly matches against each other - Sora and Riku even having a friendly rivalry.
During the destruction of the islands, Sora attempted to stave off the Heartless with the toy sword while making his way to Riku and Kairi, having barely any effect on the Shadows. When he and Riku were covered in darkness, the sword became the Keyblade, which Sora then used until he arrived in Hollow Bastion.
It appears, however, that Riku kept his and it washed up with him in Hollow Bastion. While Maleficent gave him the Soul Eater, he kept the wooden blade around. When Sora arrived in Hollow Bastion, he and Riku had a short standoff, and Riku's strong heart prevailed. Now wielding the Kingdom Key himself, Riku tossed Sora his old wooden sword, telling him to go and play hero.
With the help of the Beast, Sora made his way into the Entrance Hall of Hollow Bastion, where he and Riku had another showdown, and this time, Sora's heart held out. The Kingdom Key chose Sora once more, and the two fought. It is unknown what happened to the Wooden Sword after this.
The Wooden Sword is easily the weakest weapon in the game, and possibly the weakest in the entire series (its only rivals being Kingdom Hearts II's Struggle Bats, as well as Kingdom Hearts 358/2 Days's Wooden Stick).
As its name suggests, it is indeed a toy, crudely made from pieces of wood to look like a real sword by the boys of Destiny Islands. It has next to no effect on even the weakest of Heartless, although Sora can still cast magic through it if he knows any. Despite his swordsmanship and magical training, Sora is nearly helpless when using this sword instead of the Keyblade, and must rely on his party members to destroy his enemies, or else run.