Ah yes, there're only rumors, that this item was originally intended to play some role in the never released expansion "
Lost Vale". It doesn't play any role in the original game, however, except that sentence and the kneeling of Avatar.
Another strange "item" - if you leave Tenebrae by the east gate (in the left town part of Tenebrae) and go up to the "north" until you reach the river, then follow the river until the mountains arise, you'll see a small cave. If you enter this cave and go through to a spot where they're bars enclosing a chest and two (if I remember correctly) levers, and then continue further south and little down, you'll see a sack with some reagents. Somewhere either below the sack or in it there's a strange white-blue item that slightly resembles a whistle. You can't use it in any way, and you can't use it as a reagent. Anyone else noticed it, and maybe knows more about it?
Edit: Actually people, guess what? There was ONE copy of Lost Vale box that was released and has been sold! Though it seems no actual addon as the software itself. Someone bought it for a private collection and some information about it can be found here:
Wikipedia
Lost Vale gamebox details