Actually, making a katana is a bit more complex, but I've never heard of any sword taking over a year to make, it's just not practical. Typically a traditional katana takes a little less than a month to complete.
First, iron is harvested in the form of a fine black sand that is refined with charcoal in a huge kiln four for days with people watching it day and night, this process turns the iron into the fine Japanese steel called Tamahagane. This rough and shapeless lump of metal is then broken up and sent to various sword smiths, chief among these (last time I checked) being the famed Oda Yoshimitsu.
The sword smith then separates the Tamahagane into harder and softer steel plates, these plates are folded over several times. Then the harder steel is folded into a U shape and the soft steel in inserted into it, these are then "forge welded" together and hammered out into a straight blade. The reason for this is because, although the hard steel will hold a very strong, very sharp edge, it is also very brittle and can shatter easily, the soft steel in the spine acts as a shock absorber.
The sword is heat tempered a few times and then "differentially tempered". This is done by applying a thin coat of charcoal, clay, and water to the back of the blade and then fired, once the blade reaches a very exact temperature it is pulled from the fire and immediately quenched, the coating on the blade causes the steel to heat and cool at different rates which further hardens the edge while keeping the back soft, the steel cooling at two different rates also means that it will contract at different rates which gives the katana its characteristic curve.
The blade is sent off to yet another specialist to be sharpened, polished to its mirror shine and trimmed with all the necessities of a sword (handle, guard, etc.)
A few weeks and three people later, you have what is widely held to be the best sword made by human hands, a finished katana.
This information brought to you be the TendoKing who gleaned it from the katana special of Nova on the history channel, and Weapon Masters on discovery.