Knockdown (abbreviated as KD) occurs when using a certain attack that knocks down or when a certain amount of attacks has been reached. The reason this exists is to prevent infinite combos. It's best to not knockdown a monster/opponent since this leads to increased damage reduction while the enemy is on the ground (in PvE) or a combo ending (in PvP).
Conditions
The target will automatically knockdown when:
A knockdown attack has been used
Any hit after the knockdown counter has been reached:
PVP = 100 Max KD
PVE = 130 Max KD
Knockdown counter will reset after a knockdown from the above conditions
In PvP Season 3, the knockdown counter will reset only from a knockdown from breaching the knockdown counter
Gravity
This is different from a knockdown.
After two launch hits (some exceptions) the target will have gravity and have a very short launch distance
The launch counter can be reset with certain combos or skills
Knockdown from a launch will not result in the knockdown counter resetting