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There was an old 3.5 book that went into detail regarding this. Weapons of Legacy, I think it might have been called. It had some weird rules, feat and "quest" requirements. Like kill a CR 5 devil with no help to unlock the next portion of the weapon, while also reducing skill points or max hp.
Still the concept was interesting and I used it a few times.
Instead of the items "growing" based on use though, I created a rough progression path based on how my players said they were going to level their characters. For that particular campaign I also had players choose an element that their characters felt more in tune with during creation and used that as an additional spring board for how their weapons could adjust.
Even with that I still changed things as we went. For instance, initially a player planned on going longsword all the way, but after a string of lucky rolls and some entertaining roleplay he decide to keep using a morning star he had picked up during combat.
The important thing is to keep your players and their characters in mind when you are growing those weapons. What might seem cool to you, may not mesh with a character. Though that doesn't mean you need to tell your characters about their weapons. I took great delight and occasionally allowing some ability to activate without a player knowing it existed, it also gave them a greater interest in the weapon they had picked up so it wouldn't get tossed to the side as easily.
In terms of limiting items the first link My Self posted about scaling magic items will give you an idea on pricing and power level. There are several pre-made items that will give you a decent scale to compare to for creating your own weapons.