It's pretty simple, really - it's double dipping. You get its effect twice.
First, it applies a modifier to your weapon damage - possibly unique, I haven't seen any other sources of a modifier like this - which is used in its own place in the calculation formula.
Second, it adds that same modifier to your skill damage bonus. This is why you'll notice your skill damage go up by 10% (15% with force weapon) in your details page of your inventory.
So what ends up happening is magic weapon adds 1.1*1.1 = 1.21 = 21% bonus damage, instead of the listed 10%. (32.25% with force weapon rune)
The weapon damage modifier stacks multiplicatively with other sources of skill damage bonus, such as glass cannon and sparkflint - which all stack additively with each other. Glass cannon, sparkflint and force weapon combined would give you 15% + 12% + 15% = 42% skill damage modifier, and then there'd be an additional 15% weapon damage modifier, which would net you 1.42 * 1.15 = 1.633 = 63.3% damage increase.
(I played it fast and loose with two equals signs for the sake of brevity and clarity.)