The Book of Death is an item in The Witch's House. It can be obtained by giving rope to the librarian, who will be sorting books. He is located in the Library on the 2nd Floor. He will give you the Book of Death as a reward, along with his thanks.
"The front cover seems safe. But reading the contents..." — Description of the Book of Death
The player has to put the book in the bookshelf in the bottom-right of the Glass Display Room. After putting the book away, Viola will hear the lid of a glass case coming off (the one containing the Model Butterfly), and the Bloody Skull will attempt to kill the player. You simply need to get around it and exit the room, as you can only obtain the Model Butterfly after escaping the Bloody Skull (leaving the room). It's easiest to go around the bookcase to evade it.
In Extra Mode, the books in the bookcase in the bottom-right of the Glass Display Room will be colored blue, and if Viola puts the Book of Death inside, the bookcase will fall on her, crushing her to death, this also happens when the Bloody Skull is chasing you, and you go right in front of it instead of going around.
Improper Use (Death)
If the player reads the Book of Death, Viola sits down and opens the book. She will begin to scratch her eyes with one hand as the screen darkens. Eventually, Viola scratches her eyes to the point of disintegration, as is evidenced by the blood that pours down her face as her eyes are reduced to empty sockets. This results in a Game Over.
Viola likely dies from the blood loss that would follow having her eyes gouged out.