The Knowledge skill is not actually a single skill. Rather, it is a
huge collection of skills, which we will not even attempt to enumerate.
What these skills have in common is that they all involve some sort of
detailed knowledge that a character without the skill would not likely
When selecting a Knowledge skill, you must indicate what the skill will provide knowledge of. There is no such thing as a general Knowledge skill. The range of possible Knowledge skills is limited only by your imagination. If it is possible to have knowledge about a certain subject, it is possible to have a Knowledge skill dedicated to that subject.
In general, a knowledge skill is approximately equivalent to a university degree in that particular area. Of course, there are Knowledge skills available that no university offers degrees in (this becomes more obvious in the Fantasy and Space supplements).
It is a good idea to verify your choices with your GM during the creation process, to make sure that they are neither too broad nor too narrow in scope. For example, Knowledge: History is a very broad skill, and will not usually prove to be very useful, as it will not provide detailed knowledge of history, but rather an overview. Knowledge: 20th Century History would probably be more effective. Knowledge: Causes of the American Civil War would give incredibly detailed information about that one topic, but nothing else, and this would also be ineffectual in most situations.
There are certain Knowledge skills which do not need to be explicitly stated. For example, you do not need to use a Knowledge skill for your character to become familiar with his country's monetary system, or the layout of his home town. You would need to take a Knowledge skill to give him information about the other monetary systems of the world, or about the layout of distant cities. Some things are implied just be being aware of your surroundings.
It is up to your GM to decide whether your character knows a certain piece of information if it becomes important. Some information would obviously be covered by a certain Knowledge skill, while others would require a skill check.
Knowledge skills are different from most other skills in that they do not imply any ability to accomplish any particular task. They instead imply a knowledge of how to go about performing the task. An example will make things clearer.
Anne has Knowledge: Art as one of her skills. This is not equivalent to the Art skill. It does not mean that she can create anything artistic, or even distinguish between good and not-so-good art. However, Anne does know about such things as the various techniques used by artists and the history of art, and she would be able to recognize most of the more famous works of art, and many lesser known pieces. If she was interested in knowing a lot about a certain period, she could have taken Knowledge: Renaissance Painters or Knowledge: Ancient Greek Sculptors (just two of the many possibilities) instead.