We all love the japanese katana sword! Its cold beauty and streamlined structure & shape have no equal in art and weaponry! However japanese government restrictions result in NOT EXISTING real japanese steel swords available for practical use at moderate prices anywhere! There are only japanese-type ones available for common use (mostly made in China)!
I'm a non-native english-speaking person so please forgive any errors!

1. Japanese sword (nihonto) art collectors
2. Unwise untrained people (or self-trained ones) who want a real sword to show and play with
3. People who want a non-functional sword-like object
   

1. Experienced responsible budoka who want to train with a live sword
2. Serious Tameshigiri (target cutting) performers
3. Weapon historians and investigators who use real testing

JAPANESE SWORD ANATOMY
The japanese sword (katana) is technically more a sabre than a sword. It's composed  by a long curved blade with a long wide tang (nagako) around which are sequentially socketed a short metal ricasso (habaki), a round or polygonal metal guard (tsuba) between metal spacers (seppa), and a wooden handle (tsuka).

There are no screws, rivets, glue or soldering keeping any of these parts in place. There are only one or two bamboo pins (mekugi) nailed through the handle and the tang, keeping the whole assembly together!

The hilt (tsuka) it's an assembly of two carved pieces of wood glued together with slotted metal pieces fitted at the ends (fuchi and kashira). The halves are wrapped in a ray skin (same) and a criss-crossing tape (ito). Two metal fittings (menuki) are placed between the tape and the ray skin (originally to cover the mekugi and improve handling).
The blade is inserted in a wooden scabbard (saya) with a lacquered finish. At one side of the saya (the omote or outside) there is a protruding loop (kurigata) with a long flat cord (sageo) tied to.

BLADE FEATURES:
The blade is the most important sword part. Only its crucial features will be briefly discussed: geometry, metallurgy and forging.

GEOMETRY:
The blade has a curve (sori) which affects unsheathing and cutting performance. It's indicated by the maximum depth of the back of the blade (mune) measured from a line (nagasa) drawn from its extremities (kissaki & munemachi). A depth between .5 and 1 inch will be adequate (the higher the better for cutting).
The rate of thinning and narrowing of the blade affects balance. Less narrowing results in a forward  balanced blade which can cut better but is harder to manage.
The side fullers or "blood" grooves (hi) lighten the blade and make whooshing sounds easier to produce when swinging (not necessarily well as some think!). They allow better blade balance and easier handling but weaken and roughen the blade making them less handy for target cutting. They are much appreciated in Iaido.
A blade with straight sides cuts easier than a blade with side "meat" or bulging (niku). However the latter is stronger and performs better in hard targets.
The blade's tip (kissaki) is a revealing and unmistakable feature of a blade showing clearly the quality of the making even to untrained eyes. However nowadays they are mostly crudely shaped by grinding the blade into the (un)desired shape in mass produced swords often failing to merge harmoniously with the remaining blade. A long kissaki may be better for cutting but makes it dangerously difficult to sheathe in Iai (noto).

METALURGY:
In spite of several expert remarks in Ebay simple picture observation doesn't give much information on metalurgy except when the "stainless steel" words are clearly engraved on the blade! One has to (dis)trust the seller's information using some common sense. Don't accept meaningless statements such as "live blade", "carbon steel", "battle ready", "can cut metal", etc.
Usually a plain carbon steel (10XX AISI) between 1045 and 1095 AISI should be chosen the higher number the harder steel better for cutting. These are also ideal for differential hardening featuring the best looking hamon. The original japanese nihonto steel is very similar to these!
Modern steel alloys such as 5160 (low-chromium) and 9260 (silicon-manganese) and hard toolmaking steels such as A2, D2, T10 or L6 may also be used to make excellent swords even able to outperform nihonto in resilience!
Stainless (high chromium) steel MUST be avoided in practical swords because of its brittleness (shard-flying risk). It's the usual steel (440) in modern "museum replicas", fantasy blades, Toledo "swords" and several other (sometimes overpriced) "wall-hangers" because of its easy manufacture and maintenance. It's suitable (specially 440C and  PM420V) for short blades though.
Aluminum alloys are unsuitable for REAL swords.

FORGING:
Structure:
Most modern blades are made from a single unfolded through-hardened piece of steel! Contrarily to common view this is a DESIRABLE feature in a modern setting resulting in a reliable sword.
Some (expensive) blades are made by folding several times each time doubling the layers (2-4-8-16-32-64-128-256-512-1024-2048-etc. so that 13 times folding gives 8192 layers!). Some smiths use two types of steel together in this process for no clear reason. This process (damascus pattern welding) was used long ago to purify the steel but is NOT NEEDED today: it gives a pleasant decorative wooden texture (hada) but can increase the chance of forging flaws in the blade! Generally speaking affordable unfolded blades are suitable for real practice (and normal purses) nowadays!
Some blades are made by forging together elements of different carbon content (e.g. San-Mai, Kobuse, etc.). IF THE TECHNIQUE IS GENUINE these laminated blades can be very resilient for practical use but are also very expensive.
Avoid engraved blades: an engraving can act as a structural flaw weakening the blade.
Tempering-Hardening:
The final grade of hardness results both from the steel type (hardening potential) and from controlled heat treatment and is measured in Rockwell (HRC). 50 to 55 HRC is the norm for through-hardened cutlery and swords for both good edge-holding and toughness (resistance to shock).
Beware of backyard produced swords with the right steel but mediocre tempering-hardening! A good tempering-hardening process can get all the hardening potential of a not-so-good-steel but when badly done can turn excellent steel into junk!
Some (expensive) blades are differentially hardened: This traditional process results in different hardnesses in the edge and in the back of the blade causing the appearance of a band shinning differently (hamon). Through the traditional japanese differential hardening usually a softer 30 to 45 HRC is obtained on the back of the blade (for toughness) and a harder 55-60 HRC is obtained on the edge (for edge-holding) with obvious structural benefits.
Unfortunately fake bands are easily made by grinding, polishing, brushing, staining or etching sometimes being impossible to detect in pictures. As a rule you shouldn't care about hamon when selecting a practical sword!

LENGTH & BALANCE:
Do not forget that, when mounted, the habaki IS normaly included in the blade's length (nagasa)! A general rule for determining the ideal length is handling the sword near the tsuka when standing and letting it hang naturally downwards: its tip should almost touch the floor. The hilt (tsuka) is normally the same length as the user's forearm. However exceedingly (ridiculously) large tsuka are common in most modern production swords!

Actually some old Budo schools prefer shorter sizes than these (27 to 29 inches nagasa and 9.5 to 11.5 inches tsuka for most) and your Sensei's advice should always override any rule!

A middle-sized sword's center of balance is traditionally 5 to 7 inches forward of the tsuba. Near the upper limit (forward) for better cutting, near the lower limit (backward) for easier handling in Iaido. Changing the tsuba or the tsuka for heavier or lighter ones shifts balance compensating the blade's weight!

FITTINGS, HANDLING & SAFETY:
The tsuka should be only slightly longer then the tang. It should have a shape slightly similar to a hourglass which should follow the blade's curve. The wooden halves should be slightly asymmetrical (to avoid tang displacement through the junction) and fully wrapped in a single piece of ray-skin (not just two side panels). Sadly these are rare features even in the more expensive production swords!
Large tsuba DO NOT offer increased protection and can hinder some sword techniques by blocking the wrists!
Beware of brittle cast iron or soft alloy tsuba: prefer forged iron or brass tsuba!
Thicker spacers (seppa) or additional ones can solve most loose tsuba problems.
Always check the retaining pins (mekugi) before practice! A loose pin can let the blade fly with hazardous consequences! They are sold on the Net or can be made by selecting and processing bamboo chopsticks. Have a stock ready!
VERY IMPORTANT!!!: Beware of inquisitive children!

MAINTENANCE:
A practical sword is prone to rusting needing regular maintenance by thorough cleaning and oiling and careful handling and storing. AVOID PUTTING YOUR FINGERS ON THE BLADE. Clean and oil the sword at least once a month and each time you handle it. Apply a thin layer of gun or sewing-machine oil and store the sword horizontally to avoid soaking the wooden scabbard.
A practical sword owner should be able at least to light-polish the blade to eliminate small scratches and restore edge (polishing & sharpening are one and the same process on a katana blade).
For safety purposes a blade can also be unsharpened by rubbing it edge down very lightly on a sharpening whetstone as if cutting it.

BASIC BUYING GUIDELINES

1. THE RIGHT SELLER: Stay away from private feedbacks! Allways check the feedback: not only the raw numbers but also the INFO left by buyers. Check non-delivery or not-as-described complaints! If the seller is a retailer try also to find past feedback remarks related to the sword type you intend to buy. When in doubt ask the seller or the buyer! Beware: some sellers don't really know what they are selling!
2. BRAND NAMES: Almost all mass produced japanese-type swords come from China or Korea nowadays. Some have brand names which indicate quality control: Dynasty, Hanwei/Paul Chen/Bugei, Last Legend, Cheness, Cold Steel are some of the names to look for. Fast improving their quality stand Koto-Tony Long, Masahiro-Ryumon and various other Long Quan brands. The old chinese Long Quan forges make many functional swords today some of them unbranded or sold under several names. By the present rate they will soon be the main suppliers of suitable swords for the martial arts. There are several more brands but I have no hands-on experience with them.
3. EVALUATE: There is no way to physically evaluate a sword in Ebay. Reliance from pictures can be misleading but some details can be revealing such as the kissaki! Also the tsuka is important in this evaluation! Uneven wrapping, misplaced components or wrong overall shape: all of these can reveal a bad deal. Metal fittings are poor indicators: swords from different makers often feature fittings from the same stock!
4. CUSTOMIZE: This is the most difficult but also the most rewarding way to get a suitable sword! In Ebay single blades, scabbards and all types of fittings are available and one can buy a set in order to build or alter a sword. One can buy a japanese iaito discard its worthless "blade" and mount a suitable steel blade on it getting an "almost" japanese sword!. Replacing a tsuba can improve balance and looks. Simple use of a file can help adapting tsuba and seppa to existing blades. A large tsuka can be easily shortened. The more daring can even try to shape a tsuka or perfect a blade's geometry by polishing.
5. COMPARE similar products taking into account different seller data, prices, shipping rates, item description. You can sometimes fill-in lacking details looking into another seller's identical item's description.
6. SHIPPING: Beware of shipping from foreign countries (sometimes disguised foreign sellers with exagerated "domestic" shipping prices). rates can be high and Customs can delay, high-tax or confiscate your sword. Check this issues BEFORE buying!