Search for the song on Napster and you're bound to find it spelled Knights, basically just due to the ineptness/ignorance of whomever recorded the song onto his/her computer. Similar case in point: there is a legion of younger listeners who think "Cats in the Cradle" is by Cat Stevens simply because this Harry Chapin classic was misattributed to Cat on an MP3 file, more and more people downloaded it over time (it becomes an exponential process before long) and voila.
As far as the lyrics not making sense... it was the sixties after all... ANYTHING was possible!
"Lime and limpid green, a second scene
A fight between the blue you once knew.
Floating down, the sound resounds
Around the icy waters underground.
Jupiter and Saturn, Oberon, Miranda and Titania.
Neptune, Titan, Stars can frighten.
Blinding signs flap
Flicker, flicker, flicker blam. Pow, pow.
Stairway scare, Dan Dare who's there?
Lime and limpid green, the sounds around the icy waters under
Lime and limpid green, the sounds around the icy waters underground. "
--Syd Barrett, 1967.