The knockout occurs because the impact of the brain hitting the cranium and the twisting of the brain stem when being hit in the jaw.
Here are a couple of webpages with some extra details:
http://forums.maxboxing.com/lofiversion/index.php/t26024.html and
"A knockout, or loss of consciousness, occurs for one of three reasons:
- The brain is injured as it bangs against the opposite side of the skull.
- There is a disruption in the nerve message systems of the brain...
- There is a disruption in blood flow to the brain.... If a fighter is hit “on the button,” or square on the jaw, the force of the blow is transmitted directly to the Temporomandibular joint (TMJ) where it temporarily disrupts cerebral circulation."
http://tkdtutor.com/11Training/Knockouts.htm