I know that the weilder of the vampire sword loses life with every hit and the person the weilder is attacking gains life. So this is my idea, why not get an NPC with high health to atack you with the sword during a battle with a powerful enemy. When you lose life to the enemy your fighting, youll get it right back when you are hit by the vampire sword by your NPC. GREAT HA! Kagain would probably be the best NPC to try this trick with, as he gains life back gradually.

Yep, this is the only logical purpose for sword. However, it's not all that practical from what I have heard. It would take less time (real-time) to simply rest, and use your healing spells until you are healed up. Plus there is really no game time limit within Baldur's Gate, unless you plan on playing over 300 hours or something. It's a completely irrelevant quest and item. I wonder why the developers would waste precious time, money, and disc space on silly, stupid, dumb, goofy, irrelevant, dopey, poopy, crappy, silly, (oh wait, I already said 'silly') quests and items! GGGGRRRRRrrrrrrrRRRRRrrr!!!

What the hell are you talking about? The sword is maybe one of the best in the game!!! I mean, c'mon, what a great idea!!! Also, this is way easier and faster than resting and healing! Moron bungole whopper head thingy!!!!!

Slayer, what the hell are you talking about?

How so?
What are you going to do, run back to Beregost or wherever you leave Kagain everytime you need to heal yourself? This idea still seems very impractical to me. But hey, if you want to do it, it's your choice.