Does rust matter on my wood carving knives if I sharpen them?
Depends on how deep the rust is. Rust weakens the bonds in the metal, but unless it is rusted right through, it's probably recoverable. Basically, you want to:


Remove the rust, likely a soak in vinegar for a day or so will do the main job.
Sand off any remaining rust using something like steel wool or fine grit sandpaper.
Sharpen.
Polish to restore finish.


People restore old kitchen and pocket knives all the time and you can find lots of different techniques online. Unless the knife has been rusting for a lot longer than we've been alive, I think you're good once you've removed the rust and stopped the oxidation.