“Serrated edges and other aspects of normal weapons are included in the 1d4 slashing hitpoint damage that a dagger does inherently. A well made dagger, which may include dwarven-made serrations or other aspects, is considered Masterwork – being considerably more difficult to make, and more expensive, and granting +1 to hit (increasing the chance it does damage).”
What your player is doing is called arguing for advantage. It is not really related to pre-existing setting lore at all – this particular argument for example is at least partially related to real-world history, or at least common misconceptions about real-world history (serrated edges on edged weapons).
Your player wants to gain a mechanical advantage in order to succeed more and is attempting to do so by exerting social pressure. On you directly, or via convincing other players. This is generally solved in a few ways, the most common of which is just to say ‘no’. As the GM you have authority over the game and the rules used in the game. If you just repeatedly say no to his attempts to ask for homebrew that favours him, preferably while saying yes to more reasonable suggestions from other players (to provide a comparison to him of the kind of thing that is more acceptable to ask for) (like a player asking if the town has an inn, you say yes – or a church of pelor – or if a blacksmith can forge together his broken sword, or his ranger can roll survival to know whether dragons eat carrion etc), arguing for advantage players will typically rein it in, since their goal (of gaining advantage) is not being met.
You can also discuss it out of game with them. Or explain to the entire table that you’re going to be running the rules as they are and not modify them based on what people consider ‘lore’ or ‘realistic’ unless you decide to do so on your own. There’s a myriad of ways to deal with what is effectively a social problem with someone treating the game as ‘they have to win’ rather than ‘a fun thing to do with friends’.
However viewing this as some kind of thing it isn’t will generally stop you dealing with it. Regardless of what is claimed about lore or whatever, this is someone trying to use social arguing to gain advantage in a game, and if you approach the problem from that angle, you will generally quickly see how to resolve it.
I would recommend not simply handing out bonuses to this player any time they say ‘but my sword has a hilt guard so I should chop off the orc warlord’s fingers’ or whatever. Rarely are such players happy with a situation that doesn’t have them wildly overshadowing the party and often such arguing for advantage both takes people out of any roleplaying or storytelling that is occurring and at the same time lowers their investment in the game and bores them. You generally don’t want any of that to happen if you are the GM, and it doesn’t particularly add anything to the game if this guy gets 1d2 bleed damage because of his serrated dagger and +5 to scent checks because he cleared his sinuses with lemon juice or whatever. Just say no.