The silver needle is a quest item used in the Murder Mystery quest. It is obtained from a barrel in Elizabeth's bedroom in the Sinclair Mansion. It has Elizabeth's fingerprints on it and is used to determine if Elizabeth is the murderer or not. If it is used on the flour barrel, it will create a dusted silver needle, and flypaper is used on it, it will create Elizabeth's print, which can be compared with the unknown print to see if Elizabeth is the killer.
If you save a copy by using the drop trick, you can not use it as a needle, making it worthless to keep after the quest.