Final answer:
The Knights of Labor influenced the populist movement by setting the stage for the formation of the Populist Party in the late 1800s, which aligned with many of their ideals.
Step-by-step explanation:
The Knights of Labor were a significant labor union in the late 1800s and played a role in shaping the populist movement. Although they were successful in some respects, their influence waned due to setbacks such as the Haymarket Square incident and internal tensions. However, their advocacy for workers' rights and more radical goals, such as the abolition of child labor, resonated with the emerging Populist Movement.
Their ideology and struggles did help set the stage for the Populist Party, which emerged in the 1890s championing many of the issues the Knights of Labor supported. Thus, of the options provided, Option 2 best describes the impact of the Knights of Labor on the populist movement: they were a factor in the formation of the populist party in the late 1800s.