The Toy Knife can be found south of Turtledove Detention Camp, in the vicinity of one of the yellow signs. Fast travel to Turtledove. Exit the center via the south gate with the truck. You should see a sign just past the gate. Go south until you find an identical sign. From this sign look due west. Go around the bushes that you see to find a tree broken in half. At the foot of the tree is the knife sitting next to a hockey mask.
This knife has a very low item health (only 10 compared to 100 for a standard Knife), which means it has one of the lowest of any weapon in the game, and degrades so fast that, if half repaired at the start of a fight, it will likely break before it ends.
The knife has the lowest AP of any weapon in the entire game (with maxed AP , you can get 27 strikes in one VATS attack), possibly giving it some amount of usefulness... The Ritual Knife does not have quite as low AP, but is usually considered much more useful, due to both its higher damage and higher item health.
The knife might be considered moderately useful when combined with the Ghoul Ecology perk, adding 5 points of damage to each strike against an enemy. Using the 27 VATS strike model above, this would add up to a respectable amount of damage, though it is still less than the damage dealt by the Ritual Knife's 22 strikes when wielded with the same amount of AP.