Can someone explain why knighthood is important and what it is for
The KBE "Knight Commander of tHe British Empire" is one of a series of honors that may be bestown by the Soverieign. Other such honors are the OBE "Order of the British Empire", MBE "Memember of the British Empire" etc.
The KBE entitles the honoree to style himself, and use the title "Sir". It also allows his wife to be referred to as "Lady" Ive. The KBE is a "lifetime" honor, not a hereditary one, and as such there is not a title that can be passed down to his heirs. Such a hereditary title, known as a Baronetcy, is rarely, if ever awarded these days.
There are actually higher civilian honors that can awarded, such as a Peerage. This entitles the honoree to be known as Lord such and such. And in some cases even entitles the honoree to sit in the British House of Lords. there is also the honor of Knight Commander of the Bath, KCB, which is restricted to a very few individuals. Winston Churchill accepted a KCB, which made him "Sir Winston", rather than Lord Churchill, which would have prevented him from serving in the House of Commons.
The US recognizes foreign titles from a Diplomatic standpoint, however it does not permit US citizens to use any titles they might be entitled to. Ronald Reagan and Casper Weinberger would have fallen into this category.
In practice, there have been virtually no hereditary titles awarded to people outside the Royal family since the end of WWII. Hereditary peerages were awarded to General Montgomery, and his son inherited the Viscountcy when he died. Such hereditary titles endure as long as there is a male heir to inherit it, although there is talk of changing the law to give equal rights for women.
Britain's Honours system is somewhat of an anachronism, but it is largely harmless. It is also more than a little bewildering, with all it's various rules and degrees. One thing I can tell you for certain though, is that the correct form of address is ALWAYS "Sir Jon" and NEVER "Sir Ive".
