Risks of pedaling with outward pointing knee
I think this usually happens when people have the saddle extremely low. Having the saddle too low is bad for knees and power output.

According to my bike fitter a bit of sideways movement in the knees is not bad and mostly a matter of training (if your fit and shoes are otherwise okay). However, keeping it to a minimal is desirable and apparently some professional cyclists train this by strapping styrofoam to the sides of their frames.