After you obeyed his command to punish Ghost Widow for her actions against Red Widow, Arbiter Daos gave you this seal. It's a mark of distinction within Arachnos, as well as a reminder of the adventure you like to call:
Life and Death
It began when Ghost Widow told you she had grown tired of her spectral life. She wanted to become human again, and she suspected the Circle of Thorns would know a way to do it. You scoured the streets for the mages, and eventually learned that the secrets might lie in the Tome of Tormvodel.
You stole the tome from a Circle base, and Ghost Widow prepared to work her magic.
But she wanted to test the ritual first. She sent you to gather some artifacts of another spirit's life.
You gathered the items, and learned that Ghost Widow's target was none other than Red Widow, one of Lord Recluse's most trusted assassins. You performed the ceremony, but instead of restoring Red Widow to life, you used a soul crystal to trap her.
Ghost Widow was ready to work the spell on herself, but first you were summoned before Arbiter Daos. He informed you that Ghost Widow's actions had incurred the ire of Lord Recluse. If you wished to drag yourself out of the hole she had dug, you would not help Ghost Widow; instead, you would punish her. Daos first had you recover the Red Widow's soul from one of Ghost Widow's bases. Once this was done, he had a final task for you: He wants you to defeat Ghost Widow when she tries to re-form herself, destroying her new body and returning her to her spectral form.