Ancient damascus steel was created by smelting ore in a crucible and letting it slowly cool to allow the forming of dendrite structures that cause the patterns and mettalurigcal properties. This technique was lost because it depended on a specific type of ore with the right combination of trace elements. It is presumed that the smiths of old didn't know -why- the ore was so important; just that it was. Making this steel required 3 important things: the right ore, the right smelting techniques, the right smithing and heat treatment techniques. When the ore ran out, the other knowledge was no longer passed on and lost a generation later.
However, research has regained this knowledge. Today this type of steel is known as 'wootz' and it is hideously expensive. It is comparable with today's supersteels, and outperforms everything else in cutting tests. The reason is that the dendritic structures are extremely hard, and wear less quickly than the surrounding steel. As a result, the cutting surface is littered with micro serrations that act like the teeth of a sawblade.