Knee position
The little knobby protrusion just below the knee cap is called the tibial tuberosity. It's easy to find on most folks but not on some. Conventional wisdom states that if you hold the plumb line from this spot you want it to point directly over the center of the pedal spindle. We are also making some assumptions here such as your cleat being positioned correctly under the transverse arch of your foot and you are wearing shoes that fit properly.
Note however that this is only a starting point. Recent research has shown very little power output difference when either moving the cleat fore or aft, or, moving the knee over, behind, or in front of the pedal assuming that the seat height is within the 25 to 35 degree knee bend when the the crank is at it's maximum distance from the top of the seat. (occurs when the arm is in line with the seat tube, not at the 6 o'clock position)
So now the tricky part:
The fore and aft position on the saddle will have a large impact on your ability to get your hips rotated into the correct position (about 45 degrees give or take 5) and whether or not your femur (upper leg) can have the best positional relationship to the crank. For most people that I fit this relationship occurs when the plumb lines up with the center of the pedal, or a little bit behind.
all that said, common sense should be your guideline. If it feels "right" it probably is. If it feels "wrong" than it probably is. There a lots of other little factors that come in to play as well so if you are having difficulty in achieving "one-ness" with your bike, a professional bike fit is a good idea. At Cycle Craft we charge $100 for setting up an existing bike and results are guaranteed. If it doesn't work, you don't pay!
I hope that helps.
Brendan Poh
General Manager
Serotta Advanced Certified Bike Fitter
Cycle Craft