Darth Vader's timeline power status is pre Obi Won battle where the volcano eats half his body and post falling on the Windu betrayal. He has a lightsaber and full rage control.
Neo is at first half of Matrix 2 power levels.
Fight takes place in the Jedi temple after after Vader kills everyone there. No interference is allowed, but whatever weapons are available can be used. They are in a galaxy far far away within the matrix.