Well, it seems to scare people or monsters. And then you learn that those monsters had no reason whatsoever to be scared.

It's supposed to stop Tetelo in GK1, but then showing it to her as she's about to kill Grace, but then doing nothing afterwards wouldn't get Gabriel killed. Grace and Mosely would still be dead, but she shouldn't be able to kill Gabriel because he is still holding it. But somehow she can kill Gabriel while he is holding it. And the talisman doesn't protect you from Dr. John at all.

It scares Von Zell, but apparently Von Zell shouldn't be scared of it because he can still kill Gabriel.

It seems to scare that big monster that you fight at the end of GK3, but that monster can still kill you while you are holding it. And if you just keep clicking and clicking and clicking the talisman on that monster, eventually it will kill you.

So, nothing and no one that you use the talisman on is incapable of killing you.

So what does the talisman do?

Well, to me the explanation was always, that GK, for the most part, just has no clue what he is doing. :D Or at least he's not that much of a pro (yet) - in other words he doesn't know how to use it right. Whatever mysterious power the talisman might have is irrelevant, if put in the hands of someone who still has to learn how to apply it.

It never bothered me much. You can't have the talisman be a superweapon either, because then there is no danger anymore.

I think the talisman can protect its owner. But its power is somehow limited. It shoud scare evil creatures of a lower kind, but strong deamons, mighty creatures, can withstand its influence.
E.g. Von Glower does not seem to be too scared by the view of the talisman. And he is a very old and therefore probably strong creature. But he does not really touch it either. Maybe it would hurt him if he did?
And this could also be the reason the talisman can't destroy that deamon (or whatever it is) in gk3. The deamon is too mighty, the talisman might scare him a bit, but it is not strong enough to destroy him or even hurt him seriously.
The talisman does not help against Dr. John, because he is human, not an evil creature.
Well, at least that is what comes to my mind reading this question. :-)
Of course I can be completely wrong. ;-)

I didn't pick up on this the first few times a played GK2, but the last time I played, I realized that VG may have wanted to bite Gabriel while he was sleeping, but perhaps the talisman stopped him. If so, then that would be one time the talisman did something important.

I'm not entirely sure of that though. It could just be VG was checking on Gabriel, but then he saw the talisman and didn't like what he saw. VG knew that talisman because he had seen it around the neck of one of Gabriel's ancestors, who captured his father which eventually led to the death of his father. So the talisman could've brought back sad memories of VG's childhood. Not only that, but that may have been when VG realized who Gabriel was and VG may have known then that he was in danger if he didn't get Gabriel on his side. I originally thought VG knew who Gabriel was right from the beginning because of the Ritter paperwork that Gabriel had shown him (a Ritter had captured VG's father), but one thin I have learned for sure is that I'm not the best at figuring out what exactly is going on in a Gabriel Knight game.

The talisman and the dagger both fail to live up to the hype that the game itself creates for them. The game makes it sound like with these weapons, Gabriel will become a true Schattenjäger who picks up where Wolfgang left off.

Instead, those weapons do nothing to change Gabriel into a hero, and he mostly remains the same oafish goofball character that he was at the start of the game.

So basically, the uselessness of the talisman and the dagger can be chalked up to a problem of bad writing.

They are not useless. They are important tools for a/the Schattenjäger.
Nowhere is said, that they would change Gabriel or anybody else who ownes them. At least I don't remember anything of that kind being said. But without some sort oft "weapon", the Schattenjäger would be pretty weak and helpless.
A sword alone doesn't make someone being a knight. But a knight needs a good sword. ;-)

The whole point of magical relics is to make the hero powerful. It's a basic theme of most myths. GK1 starts to implement that theme, then gets cold feet and tries to back away from it by gimping the relics' powers out of the blue.

Yes, without a weapon the Schattenjäger would be pretty weak and helpless. The problem with GK1 is, Gabriel remains weak and helpless with the talisman and dagger. They do nothing to help him stop being a defenseless wimp who instantly dies when he encounters any danger.

A real Schattenjäger hero should not be so wimpy as is Gabriel. The game can't have its cake and eat it too. Either Gabriel is a Schattenjäger or he's not. And if he is, then he should be strong like one.

Well, one thing I do understand is that the series emphasizes character development. That is to say that Gabriel doesn't start off as your perfect hero like King Graham or the "Quest For Glory" hero. He starts off as a loser, and then he slowly develops into a hero. But even then, he's just beginning to learn how to be a Schattenjager. Getting the talisman and the dagger do not instantly turn him into King Graham. He still has to learn how to use them.

And I think Gabriel clearly does get smarter as the series goes along. He's not meant to be a genius in the way that Grace is, but he does get smarter. The intellectual quality of the Gabriel/Grace conversations in GK3 goes way over my head more often than not. I have no idea what Grace is talking about but Gabriel sure seems to. That's a sign of tremendous intellectual growth. And Gabriel was always intelligent, it's just a rogue-ish kind of intelligence. He never was as dumb as he appeared. If you disagree, let's see you try to trick a mime into following you to a policeman's bike in real life. There's more than one kind of intelligence. Grace is smart in her way and Gabriel is smart in his way