Knockout options let you specify which layers “punch through” to reveal content from other layers. For example, you can use a text layer to knock out a color adjustment layer and reveal a portion of the image using the original colors.
As you plan your knockout effect, you need to decide which layer will create the shape of the knockout, which layers will be punched through, and which layer will be revealed. If you want to reveal a layer other than the Background, you can place the layers you want to use in a group or clipping mask.