What would be the best way to animate a smooth transition between a mostly normal hand and a large blade? (The blade is part of the arm.) Something like clayface or prototype?
I would recommend using shape keys. Shape keys will warp between one shape to another.
To use shape keys. Create the default mesh, then go to edit mode and scroll down to the shape keys section. Click the plus and model the blade(make sure to use the same vertices as the hand model). Exit edit mode, and drag the influence slider to change the shape.