I found a (random item) phasing bastard sword which makes an enemy phased 15% of hits. Apart from flashing into semi transparent grey and loosing the extra 1 or 2 hit points after a round, what is this phasing all about ? They still seem to hit me just as hard afterwards !

If I'm not mistaken, in the real AD&D, phasing sends the creature back to the plane it came from.

Supposedly the location of the target oscillates between two planes for a while. It's a very uncomfortable condition, hence the loss of HP.