Gadderanks invented this hammer to combat shades, which he feared and despised. During In Aid of the Myreque, players must fight and kill Gadderanks, and he will drop his hammer, which can then be used as a weapon. It deals more damage and is more accurate against shades, which makes it useful for the Shades of Mort'ton minigame.
When the Gadderhammer was first released, there were no requirements, quest or level, to wield. This meant that any low level character could hold the Gadderhammer which offered excellent bonuses. This was changed in an update a few days after.
Prior to the introduction of the Grand Exchange, the Gadderhammer was inaccurately listed on many item pricing websites as being worth ~40k coins. As it could be purchased for 3k coins, it was occasionally sold by scammers for major profit. As a quest item, you could only buy it if you didn't have one in your inventory, but if you piled them on the ground as you bought them, you could fill your inventory before banking.