Buggy accidentally consumed the Bara Bara no Mi, (Chop Chop fruit) a Devil Fruit, which allows him to separate his body parts and control them independent of each other, but robbed him of the ability to swim. The abilities gained from this fruit also make Buggy immune to attacks from knives or swords; any such attack just separates him into his component parts.
In addition, most of his body is capable of flying through the air, fast enough to propel a man through a wall - with the crucial exception of his feet. However, even though the parts are separate, Buggy can still feel what the part feels (for example, when Luffy attacked Buggy, he separated his torso from his waist, only to find that Luffy was aiming for the crotch. Needless to say this left him with a rather painful result. Also when Buggy launched his hand out to pin down Zoro for Cabaji's Sting of the Unicycle Technique, Luffy stomped on it, inflicting tremendous pain). He also seems to require either a fixed distance from his detachments, or keep them within his line of vision, in order to manipulate them separately.
Besides his Devil fruit abilities he usually fights with three knives between his fingers. During the flashbacks of his youth he already used these three knives. He also has a blade hidden in his shoe and in Logue Town used a sword in his failed attempt to execute Luffy.