Yes, there is more than one LED (there are three) used to light up the blade in my project example. The way I accomplished changing colors was to use varying levels of Red, Green, and Blue light that mixed together in the blade. At a very basic level, this same method is used by TVs and such to create different colors for each pixel. That's why you'll notice I have the blue lines to the MOSFET gates all connected to PWM-capable pins on the Arduino.
You don't have to do it that way. To simplify the project and operate with a single LED for the main blade, you could drop say pins 5 and 6 and drive a single MOSFET and single LED for the main blade on pin 9. That way you could still have the ramp-up/ramp-down effect during power on/off. You would loose color change and flash-on-clash functionality (at least, you'd have to come up with another implementation, maybe pulse the output or something instead of changing colors), but it would be easier to code and use fewer components (also cheaper, more room in your hilt, etc).
An example of this type of LED would be this:
http://www.thecustomsabershop.com/Luxeon-Rebel-Star-P523.aspx
Also available here: