Knives are used in MAG as a Close Quarters Melee attack. Every Soldier comes equipped with one, and it is not editable in the Loadout screen, nor does it affect your maximum capacity for carrying other items. When used, it is swiped horizontally infront of the player and will instantly kill any enemy that is not wearing heavy armor or advanced medium armor, excepting headshots. Certain perks can increase the damage/speed of the knife, making it a lot more useful when taking on multiple enemies.
As of patch 1.06 the knife attack can no longer damage allies. This changed a) to make melee fights between groups of people less dangerous and b) to solves the problem of newer players knifing allies to tell them to move.