The knock sensor is bolted to the engine and reads ultra high frequency vibration from the motor. It senses the vibrations when the engine is experienceing pre-detonation and adjust the engine mangement to compensate. The car will run without the sensor, it will trip a trouble code though. The sensor is very expensive and does not like to be dropped, tapped on or anything like that.
It is insurance that a bad mixture doesn't tank the motor.
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