Its part of the ignition timing, basically it listens in the engine for pinging, or pre detonation of the fuel air mix before its meant to burn... Pinging is pretty bad for the engine, so this sensor basically keeps an eye out for any signs of pinging or knocking, and if it detects some, then the timing is retarded. On the VS there are two knock sensors, not too sure about the VR engine though. On the VS from memory they are in a difficult to get to spot behind the exhaust manifolds, I think. Again on the VS engine, if you have the engine running, and give the metal bracket that holds the alternator in place a quick sharp belt with a hammer, you should hear the engine revs dip momentarily, this is because the sound of pinging is the same as the sound you make with the hammer, and the knock sensor 'hears' this sound, and thinks the engine is pinging/knocking and then retards the timing to suit... just a good way to test that its working anyway.
