Knoppix is an example of a "live Linux" system (see Trying it out) which means everything runs from a bootable CD rather than from an installed system on the hard drive. If you want to run Knoppix, you put in the CD and reboot. If you want to use your regular operating system, you take the Knoppix CD out and reboot.
At the time of writing, the latest version of Knoppix is 3.7, and that is what is being discussed here. Maybe some of these things are specific to version 3.7, maybe they'll have changed by 3.8, I don't know.
First and foremost, you can use the Knoppix CD to see Linux without the risk of installing anything on your hard drive. You can see what Linux looks like, you can see and use the applications that come with it, you can play with the shell command line and try different window managers and read the man pages and have fun. Safe in the knowledge that you can return to your undisturbed system at any time.
You can also use it to get confidence that Linux will work on your hardware. The Knoppix people have put a lot of effort into the automatic detection of hardware, and it seems to work well. If Knoppix can make it work, there's a very good chance that a fully installed Linux system can be made to get it to work as well.
You can keep the Knoppix CD as a 'rescue disk' - for example if you install Linux and then the configuration goes wrong and it stops being able to boot, you can still boot from a Knoppix CD and investigate what's wrong.
Lastly, you can really use it for what you want to do. Edit documents, create graphics, work with spreadsheets, write code, play games, browse the internet, whatever. It isn't just a flashy demo disk, this is all fully-functioning, free software.
This isn't going to replace your operating system. Running from CD makes it slow, and sooner or later you're going to want the power and flexibility of a fully-installed Linux system on your hard drive. Think of it as a stepping stone.
If you've got NTFS hard drives, Knoppix isn't going to be able to write to them. It can read them fine, but if you edit something from your hard drive, you're going to need somewhere else to store the results, like a floppy drive or some external, non-NTFS drive. It's also not going to be able to read your CD drive if you've only got one of them, because the Knoppix CD needs to stay in the drive all the time. (Yes there are ways to get round this if you really need to).
You're probably also stuck with the software that comes on the CD - you can certainly download and compile new programs but it's not intended to form the basis for a highly-configured system. Again, you really need to look for a full Linux distribution rather than a live CD for that.
The home page of Knoppix is knoppix.net, and a thorough and brilliantly-written guide called "Knowing Knoppix" is available from Wikibooks.