A fly cutter with a cobalt cutter works the best from my experience. You can manipulate the shape of the cut by messing with the shape of the bit if you're so inclined.
The best cutting fluid for this that I know of is a mix I got from Roger Dole (and I've heard MANY of the old-school machinists recommend it). Mix 50 percent highsulpher and 50 percent kerosene. It stinks like hell, but it works.
Fasten the blade to a tooling fixture and clamp that into your vise. Then mill the nick at a slow speed.
I'm sure there are other methods
(remember all this is done prior to grinding the bevels)
Okay, it's been pointed out to me that my recommendation on cutting fluid is pretty out of date. I don't really use that stuff too much, but mostly because I can't stand the smell. It came recommended by two of the best makers I know, so that's why I find myself telling others about it.
Most of the cutting fluids in my shop are made by Tapmatic.
A nail nick is just the small "sliver" shaped notch that's milled into a folder blade for opening the knife. With the rage being in liner locks we don't see too much of these anymore...mostly thumb studs and such.