So I went and found the person that was going to supply me with the materials I needed to create this knife. I found the NPC at Camp Bentbranch just like it said in the Leve description.
As with all these things I selected the NPC and selected the chat option for the Local Leve quest.
The the NPC starts to jabber on about some crap before handing over the items I'll need to make the knife.
Finally after giving me the stuff I need I can actually get to work on getting the job done. I bring up the crafting menu and select the 'Requested Items' option. I missed this the first time I tried to do a Local Leve and was puzzled why the NPC wouldn't take the items I had made.
Anyway next I get asked which Leve I am creating the items for, so I select the knife one.
After selecting 'OK' in a few more windows I selected the item I am making and get to work.
I made the knife on my third attempt and then the game decided to tell me that actually I had to make more than one knife, i had to make two to pass the Leve. So I failed, but I did mange to get to rank 2 on Blacksmith so it's not all bad.