Note that the name of the Materia and spell is actually "Knights of Round". The "the" is added in by most gamers, but is not actually correct.
This is probably meant as a pun, as the island where the Materia is obtained is called "Round Island" (and it is, indeed, a round island). Save the game in the overworld on this island, and its name will appear on the Save screen. The name is also, of course, likely to be a reference to the Knights of the Round Table. Only one of the warriors -the last one- wields a sword; the others use a wide variety of weapons. Excalibur, maybe?
Also, generally considered to be the first in a long line of Squaresoft spells that could be used as egg timers, because of the absurdly long (if cool) animation.