This is a dependent and non-finite clause functioning adjectivally to describe Vitali. Here, both the subject and the verb, which would most likely be in gerundive form if included, are elipted. This is a standard construction in English, although elipting the verb is less common (elipting the subject is very common). You can understand the sentence like this:
- ... says Vitali, bearing a dagger at his hip. [Verb but no subject]
- ... says Vitali, who was carrying a dagger at his hip. [Subject and verb]
- ... says Vitali, who had a dagger at his hip. [Subject and verb; different conjugation]
- ... says Vitali, with a dagger at his hip. [Prepositional construct; grammatically valid, but in this particular case the clause sounds like an adverb instead of an adjective, making it unsemantic. I mention it because this is another common structure for this kind of clause]
As I said a moment ago, descriptive clauses lacking a subject are standard and ordinary in English. Indeed, this post has several; lacking a subject in the previous sentence, for example. In such a clause, a verb with no subject is generally in the infinitive or gerundive form. A participle would be ungrammatical; ... says Vitali, carried a dagger at his hip is wrong.
These clauses can also be used adverbially. Consider:
... says Vitali, sheathing a dagger at his hip.
Now the clause modifies says, giving us additional information about how and when Vitali spoke. It could be rewritten as he sheathed a dagger at his hip to convey the same meaning.
These clauses can appear almost anywhere in a sentence, though placement affects context which affects meaning. Elipting the subject and verb also makes context much more important. Clearly written English will usually put such clauses next to what they modify. In this case, because the clause comes right after Vitali and its content doesn't make sense referring to anything else, we know that it must modify Vitali.
It's easy to see why this sentence might be confusing to someone who hasn't mastered English (no easy task, that): what does the dagger have to do with the rest of the sentence? What is it doing (i.e., what is the verb)? Is it a subject or an object, grammatically speaking? These are nigh impossible to answer for someone who can't infer from the context that the clause describes Vitali's dress.