Knockout means that the object's colours will mask out those of the background; overprinting means that they will mix with those of the background (as they would when "printing over" them). Most objects should not be overprinted except to satisfy certain technical printing requirements, with the exception of black text and small black objects. You'll want to overprint these for sure, because if they're set to knock out, even a slight alignment error in the press will show a white "halo" around the black objects, sort of like a white drop shadow.
InDesign's default black is set to overprint by default, so you don't need to worry about that. If you need to overprint/knockout anything else, this function is accessed through the Window/Attributes menu. There you can choose to overprint fill, stroke, gap, all three, or none of the above. Another way to check whether overprinting is working is via the separations palette (Window/Output Preview/Separations in the drop-down list), which both turns on the overprint preview and gives you the ink mix beneath the pointer.
If white text comes out as 0,0,0,0, it's set to knockout. If it's set to overprint it will give the same reading as the background (and be invisible in this view mode). The opposite for black--if the colour readout is K100 plus whatever the background mix is (say C20 M40 Y50 K100) then you have an overprint. If the other three primary colours read zero, you have a knockout (and a potential problem on press).
Summary in printing industries: Knockout and Overprint are related to printing method.
