Japanese swordfighting is kalled kenjutsu; iaido is simply a very useful move if you are surprised, and it was typically used for blocking, though offensive use was also possible (and no, you don't block with the sheath unless it is the only option you have). Katana is always, or at least almost always, used with two hands due to balance.
BTW, katana had blade length of 60-73 cm and weight of 2-3 lbs, while European longswords had blade length of 100-120 cm and weight of 2,5-3,5 lbs. Only two-handed swords weighted cca 6 lbs. I know it is a game, but Order of the Sword swords would be unrealistically heavy for the combat weapon, probably even heavier than the parade longswords (8-15 lbs).