A simplified version of the Western European feudal system starts with the King at the top, followed by nobles/lords that would own large swaths of land throughout the country. Underneath the nobles/lords were the knights, and below them the peasants. The feudal system worked through a series of exchanges.
Kings received loyalty from their nobles, protection from the knights, and food/services from the peasants. They gave land to the lords, which they could rule as manors with employable knights and peasants in the surrounding countrysides.
Lords/nobles received land from the king, loyalty and protection from the knights, and food from the peasants. They gave smaller plots of land to the knights.
Knights received small plots of land inside the lord's realm, and gave loyalty and protection to the lord.
Peasants received protection and shelter. They gave services, including maids' work, the growing of crops, and the care of the animals.
The knights in this system were still considered part of the elite, but were on the lowest end. Knights were usually born into noble families. The land that the nobles gave the knights was usually tended to by the peasants, and in return, knights would protect the manor (or entire realm) when needed.
The feudal system wasn't originally something absolutely uniform and codified, but rather a series of adaptations to life in the Latin west after the fall of Rome. The main classes in feudal society were royalty, the nobility, the clergy, and commoners. In feudal society, all land in a kingdom was held by the king. Land, along with the peasants inhabiting the land, who were permanently tied to that land parcel, were granted to members of the nobility in return for various forms of service, including a portion of the produce of the land or money and military service in wartime.
The term knight has two overlapping meanings. In social class, a knight was a low-ranking noble. By profession, in theory, knights were mounted warriors. In general, all male members of the nobility trained in the arts of warfare and owed military service to the king, though the reality was somewhat more complex, with monetary or other forms of levy sometimes provided in lieu of military service. While commoners served as foot soldiers, members of the nobility served as cavalry. Most knights were children of nobles, but occasionally the sons of merchants or artisans could be apprenticed as squires and achieve knighthood.
While the role of knights in war time was a mounted soldiers, in peacetime, as members of the nobility, they lived on estates and supervised peasants, who were agricultural laborers. Local nobles often had various administrative responsibilities in peacetime in the areas surrounding their estates.
Knights were the dominant "weapon" of medieval warfare for centuries. Thus, the role of the knight in the feudal system was mainly to serve as an important weapon for his lord.
The knights were the lowest part of the medieval elite. They were men who were given land that they could use to support themselves. In return, they owed their military service to their lords. The knights needed to be given land because the equipment that they needed to fight as heavy cavalry was very expensive and because they needed to be able to have the time to train to be effective fighters.
Overall, then, knights were the lowest level of feudal elites. They were given land to support themselves in return for their promise to fight for their lords when needed.