What are some tips/techniques for applying knockdown texture to drywall?
Preparation: definitely use a drop cloth.  Because it's a wet job, I'd also recommend a putting down a layer of painter's plastic on top of the drop cloth.  This will catch most of the splatter and makes clean-up a lot easier -- simply roll up the plastic.  I believe the texture compound has some adhesive properties, so as long as the walls are clean, it'll stick just fine.
Fixing mistakes: you'll have several minutes to decide if you like how the job looks.  If it doesn't, just scrape off the texture and start over.
Tools: a knockdown knife is much bigger than most taping knives, so you have to do fewer passes with it for a given area, so fewer places where you could have lines.  My texture guy actually uses a hawk instead of a knife (he puts globs of texture on the hawk, then presses it onto the wall), so the tool doesn't really matter.
Tips: don't use too much texture compound; each droplet will get spread out quite a bit when you knock it down.  Don't press too hard with the tool: you're spreading it out, not scraping it off.  After it dries, you'll likely have little pointy bits sticking out where the tool pulls away from the wall; go back over the surface with your taping knife to knock them off (otherwise they'll break off when you roll primer or paint over them and you'll have little bits of texture in your paint!)