After everything settles in, and you get used to the conversation, it seems you're the butt of a few jokes, but still respected. Its as if the dwarfs consider your bravery enough to make you "one of them", but not enough to mean they need to respect your ability as a blacksmith or a fighter.
You are polite when you ask about how the competition works.
After the king tells you plenty, you've found out these things.
Once tonight is over the competition has begun. Apparently they -hate- the idea of cheating, so much so that sabotage, or stealing ideas etc is punished by exile or jail time.
You can use whatever materials you want, and it can be any kind of weapon, you cannot re-forge another blade to give him, or go treasure hunting for a weapon, you have to make for the king alone.
In three months the King will judge each weapon and decide on the one he wants. The way he will judge the weapon is using it on a target covered in black dragon scale.
Most weapons would be broken apart. He expects them to cut through it or smash it.
You get to tell of the weapons lore and items it is forged by and with and that can be done by yourself, or a bard if you wish before the King is given the weapon for testing.