There can be layer that forms on top of the mash called "teig" which is the German word for dough. That stuff is fine and makes a dense almost impermeable layer.
You can read about knifing the mash in Gordon Strong's article about the homebrewers at SN Beer Camp. He covers what Scott Jennings said on the homebrew scale, and that one of the homebrewers went back and reported an efficiency increase (Jan-Feb 2010 Zymurgy). That rang a bell with me, as one Larry Bell (pun intended) had talked about how one of the mash tuns got higher efficiency as it had knives, the other didn't back in the later 90s when they had 2 brewhouses in Kalamazoo.
IIRC SN's 200 barrel Huppmann lauter tun has a mash rake/knives. I know that Bell's 200 bbl. Huppmann has mash rake/knives. There is also a large toroidal shaped motor on axis under the tun with the shaft leading up to turn the assembly. The blades can rotate on the arm to have cutting action, or if the blades are along the arm they are used to rake the mash out (I would not like to shovel a 200 bbl mash out). There is a good figure on page 332 at the bottom of the page, hope it comes through. http://books.google.com/books?id=bHuCdG5VSmUC&pg=PA332&lpg=PA332&dq=lauter+tun+knives&source=bl&ots=8aXYrW2Dn6&sig=XWYmCxxk3FGxK6-2EoCbAtlchFo&hl=en&sa=X&ei=0zXrUJqfJ9CoqQGm0oCYAQ&ved=0CC8Q6AEwAg#v=onepage&q=lauter%20tun%20knives&f=false
Look at about 5 o'clock and you can see the motor at Bells, behind the SS pipes.
On the homebrew scale, my simple thinking is that knifing also disturbs the bed and helps plug the channels. We do it when the run off starts - if we remember.