True, but if the knock sensor is detecting a knock and the timing is retarded, doesn't that mean a knock has occurred and the engine is already toast? The answer is 'no', because if that was true, the computer would also set the check engine light and the owner's manual would tell you to have the engine checked.
I believe most automotive gas engines are designed to withstand a certain amout of light detonation without being damaged. Severe detonation over a "long" period would be a bigger problem.
That leads me back to my original thought. I was taught that an engine can have light detonation and a knock sensor will pick it up before a driver will hear it. The computer will retard the ignition to elimimate the detonation and the driver will probably never notice anything was amiss. If a simple circuit to drive a light on the dashboard could be created that was sensitive enough to detect the voltage created by the knock sensor, it seems that it would be a helpful addition to a high compression, non-computer classic car, at least to let the driver know detonation has been detected.
I wonder, though, if all the valve noise on a properly adjusted Studebaker engine with solid lifters would create false positive detections. The fameous sewing machine ticking comes from the tiny valve lash being taken up by each moving valve train.