Bo Katan refused to accept the Darksaber in The Mandalorian season 2 finale because she'd only be a legitimate ruler if she won it in trial by combat, which might explain why the Great Purge of Mandalore happened in the first place. All eyes are on CGI Luke and the alien formerly known as Baby Yoda (now known as Grogu), but another major conflict season 3 conflict was born when Din Djarin accidentally claimed the Darksaber by defeating Moff Gideon.
The Darksaber was originally introduced in Star Wars: The Clone Wars, conveniently wielded by Pre Vizsla, a who was voiced by Jon Favreau before he went on to become the showrunner for The Mandalorian. The story of the Darksaber was continued in Star Wars Rebels by Dave Filoni, and now, Filoni and Favreau have teamed up to bring the Darksaber into live-action for a new era of storytelling.
The Mandalorian is steeped in Star Wars lore, particularly Mandalorian lore, but the show also takes a number of major deviations from what fans expect from Mandalorians, especially the first season where The Mandalorian, Din Djarin, was part of a tribe who never took off their helmets, which is totally contrary to anything we've seen or heard from Mandalorians before in Star Wars. While The Mandalorian hasn't made any similar changes to Darksaber lore, it does drastically change the way we see Bo Katan's previous claim to the blade and the authority that comes with it.
Trial By Combat is the Only Legitimate Way to Claim the Darksaber
The Darksaber is the lightsaber made by the first Mandalorian Jedi, Tarre Vizsla. After his death, it was held at the Jedi Temple until the Mandalorians invaded and stole it during their war with the Jedi, making it a new symbol of Mandalorian power. Whoever wielded the Darksaber assumed the title of Mand'alor, ruling over the planet Mandalore and the Mandalorian people.
Being a warrior culture, the time-honored procedure for changes in leadership was typically a trial by combat, with the victor claiming the Darksaber as their own along with the title of Mand'alor. When Bo Katan lost the blade to Moff Gideon, she also lost her authority over the Mandalorian people, which is why Bo Katan is trying to reclaim the Darksaber, believing she can reunite the scattered remnants of her people and reclaim their homeworld. When Din Djarin, Bo Katan, and the rest of their team board Moff Gideon's ship in the season 2 finale of The Mandalorian, Bo Katan warns Din to save Moff Gideon for her to handle, but that's not how things play out. Gideon ambushes Din at Grogu's cell, leading to a duel that Din wins, confiscating the Darksaber, unaware of its full significance.
Why Bo Katan Can't Accept the Darksaber in The Mandalorian
When Din attempts to hand the Darksaber to Bo Katan, he's confused to find her rejecting it, only for Moff Gideon to giddily exclaim "she can't take it" because it can only change hands after victory in trial by combat. Din doesn't want to rule Mandalore and immediately says he yields, but it's not enough. Gideon tells Din the Darksaber itself doesn't hold any power, its authority comes from legend and tradition, meaning the story needs to be preserved: "Without that blade, she's a pretender to the throne."
If Bo Katan were to accept the Darksaber from Din without trial by combat, it would be a betrayal of the warrior tradition of the Mandalorian people, and if they knew they wouldn't accept her as their leader. Honor bound, Bo Katan refuses to accept the saber, not wanting to betray the tradition, or, more practically, also not wanting to risk having her leadership undermined should anyone find out she acquired it illegitimately. However, her rigid adherence to tradition is odd in this case because that's not how she handled things last time Bo Katan claimed the title of Mand'alor.
Bo Katan Accepted the Lightsaber as a Gift From Sabine Wren in Star Wars Rebels
As anyone who watched Star Wars Rebels surely noticed during this moment, Bo Katan already accepted the Darksaber as a gift the first time she took the mantle of Mand'alor, and there was no mention or concern over the fact Bo Katan didn't defeat Sabine in combat. Oddly enough, the tradition is still mentioned by Sabine's mother, Countess Ursa Wren, who tells Sabine she has no claim to it when she learns she didn't defeat Maul to claim the blade, so this plot point in The Mandalorian is more than a simple retcon.
During the Clone Wars, Darth Maul defeated Pre Vizsla to claim the Darksaber and rule over Mandalore, but he didn't take the title of Mand'alor. By the time of Star Wars Rebels, Maul had repurposed a red, double-bladed Inquisitor lightsaber as his own, and the Darksaber was sitting unused in Maul's base of operations on Dathomir where Sabine discovered it. She doesn't initially have a proper claim to it since there was no trial by combat, but the blade is eventually stolen by Gar Saxon and she defeats him in combat to reclaim it, seemingly satisfying the requirement; however, Sabine rejects the authority that comes from the blade until she decides to give it to Bo Katan, who all the clans ratify as the new leader of Mandalore without objection.
Because Sabine refused the mantle and the clan heads approved of Bo Katan, her authority was seen as legitimate at the time. This makes her refusal to accept the blade in The Mandalorian seem like a retcon or continuity error, or at least a major character deviation, but it could also hint at a much more interesting story.
Did Bo Katan's Illegitimate Claim to the Darkasber Cause Mandalore's Destruction?
As with any legend of its nature, the tradition of the Darksaber is sure to stimulate superstition. It's against the tradition to claim the blade without defeating its owner in combat, but how is that even enforceable? As Gideon said, the blade itself has no power, but that doesn't mean the Mandalorians don't believe it does, and it would explain a lot about the state of Mandalore during the time of The Mandalorian.
Sometime during Bo Katan's brief rule, the Empire decimated Mandalore, killing many Mandalorians and scattering the rest throughout the galaxy. This purge is when Bo Katan lost the Darksaber to Moff Gideon. The ravishing of the planet was so bad, Din Djarin and the Children of the Watch believed the planet was actually cursed and anyone that goes there will die. While Bo Katan says that's not the case, that kind of superstition may not be so foreign to the rest of the Mandalorians.
If her accepting the Darksaber without combat means her rule is illegitimate, perhaps Bo Katan and/or the rest of the Mandalore people believe the purge and loss of Mandalore was their comeuppance for accepting a leader who violated the Darksaber's most sacred tradition. This would also explain why Bo Katan believes she needs the Darksaber to take Mandalore back, as well as the fact that she only has a few other supporters with her. She may need to get the Darksaber back, legitimately this time, to prove herself worthy of taking the planet back again.
The Force works in mysterious ways and the Star Wars universe has revealed many different religions or traditions that interact with the Force in different ways, so we can't outright dismiss the possibility that the Great Purge of Mandalore was an actual metaphysical retaliation for Bo Katan forgoing the trial by combat, although regardless of if that's true or not, as Gideon said, it's the story that matters. If the people of Mandalore believe the purge was actually caused by Bo Katan violating the Darksaber's demand for combat, then that's all that matters and they'll never rally behind a leader who hasn't violently defeated the Darksaber's former owner.
Right now, that person is Din Djarin, who has no ambitions of being a leader or rallying the Mandalorians to retake their homeworld. He's allied with Bo Katan, but if he refuses to take up her cause in The Mandalorian season 3, they still might find each other at odds, leading to Bo Katan trying to take the saber from Din - the right way this time.