Rules FAQ
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Since The Knight's ability does not require you to "choose" targets, your opponents will not know which characters you intend to return to hand until after the cancel window has passed.
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You can trigger The Knight even if there is only 1 character in the defending player's discard pile. If you do, the claim value will not be raised, because the pre-then aspect of the effect has not successfully resolved in full. (See The word "Then".)
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You can use Caggo Corpsekiller to place one of the characters in its owner's dead pile instead of returning it to hand. If you do, the pre-then aspect of the effect is still considered to have resolved in full, so the claim value will be raised as well. (See Replacement Effects.)