A more precise word for étui would be fourreau.

But I think Baudelaire used étui because the word sounds more poetic than fourreau (it sounds more guttural). Furthermore, étui rhymes with aujourd’hui.

About jaillir, again, I think it for a poetic purpose: you would not say it orally or write it. There is something magic in Charmant poignard, jaillis de ton étui, as if the knife go out of the sheath itself.

In French, we commonly use dégainer une épée, tirer une épée de son fourreau.

• “étui”

Your interpretation is correct, “étui” here refers to the sheath.
The exact translation for “sheath”, in the context of a blade, is “fourreau”. “Étui” has a broader sense, meaning a protective case or cover (a very common use in French is “étui à lunettes”, as when you use it to protect your eyeglasses – sorry, I don’t know the exact English term for that.) In other words, “fourreau” is a hyponym of “étui”, used for blades: “Étui% is not incorrect in that context, just a bit vague – for poetic and rhyme purposes.

• “jaillis”

Literally, “jaillir” means “to spring (out)”. It is actually the term used for a water spring that springs out of the ground. In the imperative form here, it is used as a sort of authorization (maybe acceptance) for the knife (apparently a woman he loves) to spring out of its metaphorical sheath on its own, and go live and shine outside:

For context this is the poem: http://www.poetes.com/baud/bpossede.htm

There’s a lot of poetic license through it which is why the terms might not make as much literal sense, but in context they manage to convey meaning very vividly.

The poem is written in the voice of a possessed soul who worships evil. The thesis of it is that sometimes evil is about death, loneliness and staying in the shadows; and sometimes it is about delirious joy, debauchery, etc. The poem is built around this alternance, this contrast between the two aspects of evil; this set of verses is emphasizing the debauchery of it after another set of verses that are about darkness. The image conveyed to describe it is that of a beautiful, mesmerizing dagger which was previously hidden in its sheath and now comes out of it in a spring-like fashion, like water out of a fountain — something to marvel about, for the person in whose voice the poem is written.

There’s a lot more along those lines in the same poem — like the first line “le soleil s’est couvert d’une crêpe” does not mean that the sun covered itself with an actual veil made out of crêpe fabric (which I think is what crêpe would mean literally here). It’s about death taking over, because the crêpe is the fabric that people wore in the time of Baudelaire when they were grieving a close death.

The whole thing needs to be read in the same way, with less attention to the literal meaning and a focus on the connotations — jaillir connotes gaiety, suddenness, youthfulness, compared with sortir for example. Poignard connotes harm, evil, but also potentially cuteness because it’s small and can be quite ornate, etc.