Bat'leths were modelled upon Chinese fighting crescents.
According to its designer, Dan Curry, the bat'leth...
"...was modelled after a Chinese fighting crescent. Now it's become one of the icons associated with the show [TNG]."
Here is his original sketch:
As a fighting crescent is actually a type of knife, it might be better to classify the bat'leth as a large knife than as a sword.
As the reason for calling the weapon a "sword" is addressed neither in-universe nor out-of-universe, all we can say is that it seems to be a liberty that is being taken with the terminology.
There is, however, a relevant remark in the bat'leth entry at the official Star Trek web site:
The traditional "sword of honor" preferred by Klingon warriors adept at the martial arts. About a meter long and shaped as a double-semicircle with four points (resembling a two-ended scimitar), the bat'leth is carried along the inside of the arm and wielded using two handholds on the outside edge of the weapon.
This suggests that the sword-like quality of the bat'leth might come from its relationship to the scimitar.
But all in all, "Sword of Kahless" sounds more epic than "Knife of Kahless".