honestly, when i think back… in fairytale land, pinocchio was very good to help his dad with all this wood-works…, i remember that he was making a wooden fish or something like that, while prince charming and snow had the meeting at the round table just before the curse came…
based on this, i believe that august has made this mysterious wooden box, and i believe that he must have used the wood from the tree that he and emma came through to our world…. maybe this tree has some magic, and the box itself can show what the other believe…or wants to believe..
in short, august asked neal if he believed in magic, and said that after neal has seen what was in the box he would believe in him…. so august was very confident that no matter what neal will trust in him…. these words could led to the theory above, the box itself can show what a person wants to see or desire…. so neal in this case get surprise after seeing what was in the box and want to listen to the story august wanted to tell him… about the curse etc…
i dont think that august placed the pic of the dagger in the box, because i believe that he didnt know who neal was… but it can also be that august as emma “guardian” has tracked neal down and know neal’s real identity and placed what ever related to him in that box.. in this
i thought that august learned about the dagger from henry’s book after he took it and write his own story in there…. so his knowledge about the dagger came after he meet neal and not before…..