To steal the soul of your enemy (who is usually your friend, since you'll be playing the game together), you have to kill him first in a fencing match. One little touch with the tip of your rapier and your enemy will go down, soul already stolen.
Once you have his soul in your power, you have to take it as quickly as possible to one of the two soul absorption points on the screen. At the same time, your opponent will reappear right at the place where you're trying to take the soul. You'll have to dodge or kill your opponent again in order to get the soul to the right place and get points.
You play like this and the first one to get three points wins. Although it seems like a simple gameplay, you'll soon find out that Foiled! has a dynamic that you might not have expected when you first start playing.
Foiled! is a very fun two-player arcade game that can be best enjoyed using Xbox 360 controllers. But, despite this, it's definitely possible for two players to enjoy the game using just a single keyboard (although it's not optimal).