According to Barbas, this axe was given to Sebastian Lort, who had begged Clavicus Vile to help him cure his daughter of Lycanthropy. It can be obtained during the Daedric quest A Daedra's Best Friend and may be granted as a reward from Clavicus Vile in exchange for killing Barbas.
The axe can be upgraded with an ebony ingot and the Arcane Blacksmith perk. However, it does not benefit from any smithing perks. [Source: wikia]
You can download the papercraft model here: The Elder Scrolls V: Skyrim - Rueful Axe Free Papercraft Download