Masamune is a Celestial Weapon and it is the most powerful weapon for Auron in the game.
You must obtain the Celestial Mirror before you can obtain or create any of the Celestial Weapons. Click on the link below for more information on how to obtain the Celestial Mirror:
In order to create the fully powered-up Masamune you will need to obtain the Masamune weapon itself first, then use the 
Mars Crest and the Mars Sigil to power it up.
The first step to obtaining the weapon is to obtain the Rusty Sword. Make your way to the Calm Lands and then north into the Gorge.
Head down towards the entrance of the Cavern of the Stolen Fayth and follow the trail off to the right from here. The Rusty Sword is located at the end of the pathway. Use the screenshots below to help guide you.
Now you need to find the Statue of Lord Mi’ihen.
Take the Rusty Sword to Mushroom Rock Road. Note that you cannot select “Mushroom Rock Road” from the airship menu as this will lead you to the secret area where 
Godhand is or was located and you cannot get to the Statue of Lord Mi’ihen by entering from the Mi’ihen Highroad.
If you attempt to go this way without treading carefully you may also be ambushed by the Dark Magus Sisters. This will only happen though if you have already obtained the Magus Sisters Aeon. More information about the Dark Aeons can be found in the Dark Aeons side quest section.
Travel to the Djose Highroad instead. Walk westward until you find a stack of crates leading up onto the ruins. Follow the pathway southward.
Continue along the path until you see an area jutting out to the north. Follow the pathway in and you will find an elevator. Take the elevator up to find the statue of Lord Mi’ihen.
Press 
Button near the statue to use the Rusty Sword which will cause a glyph to appear on the far wall. Press Button near the glyph to cause the Celestial Mirror to react. The mirror will glow and you will receive Masamune.
You must now find the Mars Crest and the Mars Sigil to power up Masamune as by default it will only have the 
No AP auto-ability making it utterly useless.
Double check your inventory before you do anything to see if you already obtained the Mars Crest. It would be located under the “Key Items” tab.
If you did not obtain it during regular play through of the main story, start off by traveling to the Mi’ihen Highroad. Rent a Chocobo from the lady standing outside of Rin’s Travel Agency. Follow the Highroad along until you reach the North End where the gate is located (shown in the screenshot below.
Turn and head southeast down the small pathway. Follow the road along until you reach the end of the path where you will find a treasure chest. Open the chest to obtain the Mars Crest.
The Mars Sigil is obtained as a reward from the man at the Monster Arena. In order to receive it as a reward you will need to complete a total of ten “Area Conquests” or “Species Conquests”, or a combination of the two adding up to 10.
To unlock an “Area Conquest” you need to find each fiend in an area. To unlock a “Species Conquest” you need to capture at least one of each species, such as all of the dragon-type or all of the bird-type. Check out the Monster Arena section for details:
Return to Macalania Woods to the area where you received the Celestial Mirror once you have obtained both the Mars Crest and the Mars Sigil. Offer Masamune up twice to fully power it up using both the Crest and Sigil.
Masamune has the following abilities when fully powered up:
Break Damage Limit - Allows Auron to do more than 9,999 damage in a single attack
Triple Overdrive - Charges Auron’s Overdrive at triple the speed
First Strike - Allows Auron to attack as soon as the battle begins
Counterattack - Allows Auron to counterattack any regular attacks
