I'm not exactly sure how the lightsaber works.
Not understanding it, is half the fun! At first I thought it was "the Force!"
The blade seems to be a clear transparent plastic. And like I'd noted, you can remove it from the hilt and attach it to Obi-Wan's belt.
I can't tell if there is anything in the hilt, save for a plug-slot like how you plug cell phones into car rechargers. You plug that into Obi-Wan's hand when he holds his lightsaber. Put the blade in, and when you want it to activate, it lights up!
I don't know how they did that! But I like to think of it as Magic!
-and it lights up bright blue - so it looks really authentic, too!