When you answer an insult correctly or give a pirate an insult he cannot respond to, you will step forward. Otherwise, you will step backwards.
When the pirates say you're ready to duel the Sword Master, find her and challenge her. You may not win immediately, as you may still have to learn some more insults and replies from the basic pirates. They don't know the replies to her insults, though -- you have to figure those out on your own.