This isn't a step by step walkthrough, but rather a general overview of some tips and strategies that can help you overcome the knife only challenge.

This overview will go over: Enemies, boss fights, and general tips for the game. I will also go into a little more detail how to get through the few "problem rooms" as well.

Get the pellet gun
The pellet gun is 100% usable for the knife only run, and is extremely useful for the chainsaw psycho boss. Plus it lets you complete the shooting ranges for extra healing items.

Ignore collecting the female heads
There's little point in doing this quest since you cannot use the holy water you get.

Hoard healing items
You *will* take damage during this run. Certain enemies *will* hit you without you being able to do much to stop them. So save as many healing items as possible at the start.

Save scum
In conjunction with the above point, save often, and reload if you take damage which could be easily avoided. Annoying for sure, but again, you *need* healing items for the final area of the game.

Abuse resetting enemies
When you leave a room all the enemies in that room will reset to their respective spawn points. This is extremely useful for picking up items, or killing enemies one at a time while avoiding being crowded.

Kill zombies
Some of you may have done knife only runs in other games, which may have instilled a sense of "run past everything" in you. Ignore that urge. Zombies are very easily kill-able 1v1 provided you have the space to back up while stabbing. This is recommended as zombies can very easily grab you in this game, and deal very high damage relative to other enemies. Zombies also are often placed in narrow hallways making avoiding them more difficult than outright killing them.

Avoid zombie groups and other enemies
In contrast to the above point. Avoid literally every other enemy in the game, as well as avoiding groups of zombies. Luckily when it comes to zombie groups, they're in wider rooms and can be ran past, or lead away from items you need easily enough.

I will preface this by stating I don't know the official names for the enemies and will change the names if/when corrected.
Here is the list of generic enemies that you will find in the main game on normal difficulty, and how you should handle them.

Zombies
Stab them. If you can fight a zombie in 1v1, kill them. They can be easily killed with the knife with the correct spacing. While stabbing, the zombie will be able to close the distance on you, so after 1 or 2 stabs, stop stabbing, and continue to back away to regain distance and start stabbing again. They will die easy enough.

Dogs
Avoid. Dogs are fast and incredibly annoying. However they do little damage, so you can take multiple hits easily enough.

Cultists
AVOID. Run and do whatever you need to do as fast as possible, while praying to whatever deity you believe in. These guys will destroy you.

Spiders
Avoid. These buggers are silent, fast, and deal a nasty chunk of damage. Luckily they're only in one area.

Murlocks/fast monster dudes
These only appear in one area on normal, where the Monstrous Beast lurks. You will need to kill them. You will take hits, but luckily they're pretty weak and will die in around 5 stabs.

Skeletons
Avoid. You can easily run faster than them, and out pace their attacks. Just keep an eye on your stamina

Regenerator
Avoid. There's only one in the game, located in the cellar. You can easily outrun it, however the cellar is a tricky place to manoeuvre through, which I will go into later.

Minotaur
Kill it. It only spawns in the final boss arena, and you will need to kill it. All you can do is stab away and chug health items while doing so. Trying to avoid it will likely cost you more health than just confronting it.

While in the manor there's a few tricky rooms which can hold you up in a knife only run. I'll go over how to get through them below.

Kitchen
There's a guy locked in the pantry, and after you speak to him a group of zombies will burst through a door. Behind them is the bloody bag you'll need. Easiest method is to lure the zombies to the back left of the room (assuming you're facing the door they burst through), then run around the right side of the table for the bag, and leave through the door into the acid mixing room.

Eastern Upstairs Hallway
Yes this hallway is empty, but zombies will spawn here after you crawl through the vent using the step ladder. I advise to complete the other rooms before doing that.

Laundry Room
Pick up the health drink in the washer/dryer in the far left corner of the room first. Then release the cat. After you pick up the coin, immediately sprint for the door out. If you're fast enough you can easily make it out before the zombies even get on their feet.

Guest Bedroom
This room is extremely tricky. You don't want to attack the zombies or you will wake the other two in the room causing an even bigger problem (they will not lie back down if woken, screwing you). When you enter, let the two active zombies move towards you a little bit to get them away from the coin (the closest to you will be getting close to the center of the room). Then before they get too close dash past them to pick up the coin on the far drawers. Then quickly make your way back to the door. If you run when you immediately enter the room, it's extremely likely the two active zombies will box you in when you pick up the coin.

Kitchen Revisited
Enter from the acid mixing room side, and you'll have a clear shot to pick up the pantry key in the dumbwaiter. After you pick up the key leave through the hallway door. Go back in from the hallway door, and you have two options. Either kill the zombie on your right, fast, or lure it along with the other zombies to the dumbwaiter corner, then run past that zombie, and around the table. Unlock the pantry, grab the coin, and bail into the acid mixing room. Keep an eye on your stamina when doing this.

Outside The Cabin
You can sneak past the dogs by sticking to the left hand walls at the bottom of the stairs, and walking around them. Just keep your distance and you can make it to the cabin door with no issues.

Outside The Cabin with Cultists
Find God and pray to Him/Her/Them.
You can safely walk around the dogs and near the base of the stairs using the same route you took to avoid the dogs going to the cabin. One you get close to the stars is when hell breaks loose and the Cultists will activate, shooting the ever loving ♥♥♥♥ out of you. Just chug as many healing items as you can and go for the Manor door. That's all you can do.

The Knights
One of the hardest and longest fights of the knife only run.
If you're on normal (which you should be for this), there will only be 3 knights and a health drink where the 4th knight would spawn on hard. Get the health drink and wait for your stamina to refill before you put the crown on the statue.
The main difficulties of this fight are:
Stamina management (You NEED to avoid exhaustion at all costs).
Awareness of all of the knights activities and positions at all times.

The Bow Knight can easily be avoided and only requires your attention periodically to see where he's moving to and whether he's lining up a shot. You can direct his movement somewhat as he will always try and get line of sight on you, no matter the position it will put him in, even if it means running up to you point blank. The melee knights are much more aggressive and will be an your arse constantly.

So the main strategy is to focus down one of the melee knights first. Luckily the melee knights attacks are easily dodged if you have stamina, and can be baited into attacking. To dodge their attacks, you will need to sprint away from them as soon as you see their attack animation start, which means turning your back on them to run and gain enough distance.
The melee knights do have one giant weakness that you will use to kill them. They have an internal cooldown on their attacks. Regardless of their animations, when a melee knight swings, they cannot attack again for a few seconds giving you ample time to get 4~ knife hits in easily. If another knight does not interrupt you, that is. They may be standing there menacingly, and are even able to walk towards you, but they CANNOT attack while on their internal cooldown. This is how you kill them.

For a simple overview. Bait a melee knight (or both) into attacking, dodge, and then hit one of them 3-4 times with your knife. Do this enough times and you can easily kill both melee knights without taking any damage at all. Despite this fight being chaotic, it is purely skill based and can be completed damage-less using only the knife. After 1 knight goes down, the other will be a piece of cake, being completely open after every attack they perform. Then after the 2nd melee knight is down, you can easily dispatch the Bow Knight by forcing him to run close to you by abusing line of sight, then stabbing him in-between arrow shots, ducking in and out of cover as needed.

While the basement does have a few tricky hallways, the method for dealing with them is the same. Lure out zombies one by one, and kill them. Resetting the room by exiting and entering when needed.

Chainsaw Psycho
This boss seems scary, but is a complete pushover if you're careful.
The main difficulties of this fight are:
He will one shot you.
Dodging his attacks.
Forgetting the Pellet Gun.

The main strategy of this fight is the same as how you would normally fight him. Lure him close to a generator, shoot it with the Pellet Gun, then stab his weakpoint as much as possible. Rinse and repeat. "But I didn't pick up the Pellet Gun". Then go back and get it. "I don't wanna". Okay fine, if you want to TRULY do a knife only run here's the strategy, though it's very dull.
Bait and dodge his attack, then stab him once in the head. Look at the amount of damage you dealt and start to cry internally. It's not all bad though, because after 15+ stabs he will stagger like he was hit with a generator burst, and reveal his weakpoint. Stab the ♥♥♥♥ out of it, because that's the fastest dps you can do before you need to to another 15 or so stabs. Also don't get impatient and go for 2 stabs after baiting an attack. He can do a quick slice with his chainsaw randomly and end you right then and there.

For tips on dodging, you dodge him like you would the Knights above, bait an attack then sprint away from him. However he is slightly faster than the knights and has more range, so you will need to be more on point with your reactions.

Barrel Room
This room is not the cellar, this is the room to your right before you enter the cellar, and has 3 barrels in it. There's a hidden button on the wall below and to the right of the torch. The button will open up a secret hole in the wall with a first aid kit. Before you leave smash the barrel closest to the wall with the button, and there will both a Skeleton enemy and health drink inside the barrel. You can pick up the health drink before the Skeleton can hit you.

Cellar
A very dangerous area, that you will need to manage your stamina to get through unscathed. Under the water are numerous zombies, luckily before you get to the halfway point where the Regenerator is, all of the underwater zombies are out of your way, so if you're quick you can run past the first bunch easy enough. To help with stamina management, walk past the first couple of zombies and around the corner, where 4 will start to rise, then sprint past those 4. If you're ballsy you can also grab the health drink in the dead end to the left before the Regenerator area. Go into the Regenerator area and sprint to the T junction. Stop sprinting and go down the left path and stay near the left side wall. Multiple zombies will start to rise, sprint into the left side of the zombie and you'll push it out of the way. Then you'll see a lever and a barred door in front of you. Sprint to the lever, pull it, and then sprint/walk back through the door you initially came in from, resetting the room. Re-enter, and now you can have a leisurely walk to the silver disc and back, through the opened barred door.

Monstrous Beast Area
Kill all the zombies and Murlocks here. You'll take some damage from the Murlocks, but that's fine, they don't hurt too much. Where the skeletons are training, you can calmly walk in and take a health drink in the crates by the back wall, without alerting any of them. Make sure you kill the other zombie past the training area. Once you pick up the silver disc, the Monstrous Beast will appear, and all the skeletons in the training area will become active. Run past the Beast, and lure the skeletons into the pillar room (where you killed the zombie). Do a loop around the nearby pillar, luring the skeletons out of the way. You'll probably take a hit or 2 from the Monstrous Beast, but that's fine. After the Skeletons are out of the way, run back down the hallway, take the left path, and head out of the room.

Giant Spider
This boss is pure RNG. You WILL need healing items, and it WILL drain them.
It's a very simple to fight, but has one unavoidable attack that you're just going to have to soak up, essentially turning the fight into a DPS race and hope the RNG Gods are smiling down on you.
The main difficulties of this fight are:
RNG
Not enough healing items
RNG
RNG

The main strategy of this fight is to run straight at the Giant Spider and start stabbing as soon as the fight starts. Do not stop attacking except if the Spider starts to charge it's acid spit (you can tell it's charging the acid spit when it lowers it's head, starts shaking, and a slight gurgling SFX plays). When it is charging its acid spit, stop attacking and strafe to your right by holding forward-right (you don't even need to sprint), this will cause the acid spit to completely miss, allowing you to start stabbing again. The Giant Spider has 2 more attacks, one is the web spit, which you can outright ignore as it does no damage and you'll cut yourself out of the web before it can attack again.
The final attack is the most deadly. The quick bite. This bite has a huge hitbox, and is extremely fast, meaning you wouldn't be able to dodge it even if you try to. So your only recourse is to take the hit and keep attacking, this is where the RNG comes from.

Just keep attacking. Dodge the acid spit. Ignore the web. And pray the spider doesn't chomp you to death before you kill it.

Lord of the Nightmare
The final boss and a decent fight in terms of difficulty and the most in-depth moveset when it comes to variety. The additional monsters he spawns can be a problem causing the need for health items.
The main difficulties of this fight are:
He'll spawn 4 monsters during the fight
His sword wave
His ranged homing attack
Lack of health items

The Lord of the Nightmare has 3 attacks, which all vary in difficulty dodging, on top of the ability to summon monsters throughout the fight (he can only do this 4 times however).

The first attack is a basic overhead slash. The hitbox is very long, but extremely linear and thin, making It incredibly easy to dodge by holding forward-right. It's also incredibly telegraphed. You can keep stabbing him during his attack, as you can still avoid it even while moving at a snails pace. this is the best attack for you to bait out.

The second attack is a ranged ball of darkness which is homing. He can summon as many as he seemingly wants, and they are quite fast, not as fast as your sprint, but they will catch you if you're not paying attention. Luckily they don't do much damage and blow up after a few seconds. The way to deal with them is to just stop attacking and wait them out. Not hard, but they will drag out the fight, unless you don't care about taking the relatively low damage they inflict (this damage will add up so be careful about taking too many hits)

The third attack is 3 simultaneous sword waves/projectiles that he sends out across the ground. The 3 waves follow a cone pattern, causing the 3 waves to spread out the further the travel. The way to dodge this attack is to go through the gap in-between the waves. The downside to this is that the gap is only big enough if you're outside of stabbing range. If you're too close to him when he does this attack, you will take multiple hits from each of the waves. So as soon as you see him charging (he will hold his sword above his head, and the sword will glow red), get some distance and get ready to weave between the attacks. One method is to walk with your back to the boss, and slightly veer to the left or right.

The fourth attack is the ability to summon monsters. He can only summon the first 2 monsters when he's above half health, and can summon all 4 when below half health. The monsters he summons differs depending on the difficulty or game mode, but for normal difficulty he will summon these monsters in this order: Skeleton, Shield Skeleton, Murlock/fast melee monster, Minotaur. You need to kill these enemies immediately. You will not be able to get damage on the boss if these enemies are roaming. He can also summon as many as he's able to, so he can back-to-back summon the Skeleton and Shield Skeleton when he's above half health, meaning both monsters can be active simultaneously. This also means if he hasn't summoned any before dropping below half health, he can summon all 4 in quick succession. The good news is that once he's summoned the 4th and final monster, the Minotaur, he will no longer summon any more monsters. Making the fight much easier and simpler. When it comes to taking out each monster, you're just going to have to stab like crazy and soak hits to get them out of the fight a fast as possible.

So your game plan is to immediately deal with any monsters he spawns. When there's no additional monsters, you'll be trying to bait his overhead slash for maximum damage output. You will still be able to get an additional stab in during the startup of other attacks, with the exception of him chain spamming his 2nd attack, the ranged ball of darkness (unless you want to take the hit). It will be a long fight, as he's quite tanky but after you manage to get his summons out of the way you should be in the clear since, while annoying, his other attacks can all be consistently dodged.

With him defeated, you've beaten the knife only run in Nightmare Of Decay.