Engine knock is the characteristic vibration caused by uncontrolled combustion. This happens when the ignition spark is too far in advance of the maximum position of piston travel. This is bad as it's inefficient, causes worse  emissions and can result in cylinder temperatures high enough to damage pistons. An ignition spark advanced close to the point of 'knock' is the most desirable - it is more efficient and provides the most power from combustion.
Knock sensors are basically small flat microphones which are bolted onto the engine block to a specific torque (20nm). The ECU uses the knock sensor to listen for engine block vibrations of a certain frequency which mark the onset of knock. Using the sensor feedback it advances the ignition spark to optimum (auto tuning). If either knock sensor detects knock then the ECU knows it's advanced timing to far for the current engine running conditions and backs off (retards ignition timing). This all happens very fast; sensors are scanned every 100 milliseconds.

There is a known issue with knock sensor faults on the V6. The fault comes and goes by itself, sometimes associated with a slight drop in engine performance, sometimes not. Occasionally you may get a 16 or 17 fault code registered.
The V6 has two knock sensors; one for each bank of three cylinders. Number 1 knock sensor is at the front of the engine, number 2 at the back.
Code 16 (front knock sensor / number 1) appears to be the most common; maybe this is linked to the fact that the wire for knock sensor 1 is longer and runs over the top of the engine - and V6 engines run hot.

The Motronic 2.8 ECU scans the knock signals every 100 ms and detects a fault with one of the knock sensor signals if:
engine rpm > 1400
and
actual knock sensor value in mV < reference look up table value in mV (depends on actual rpm) for 20 consecutive scans
The fault code is stored in ECU memory if this condition persists for > 10 seconds
The ECU defaults to a safe mode if the above fault condition is true AND:
engine load > 2 ms
and
coolant temperature sensor > 45 deg C (113 F)
During safe mode the ECU retards the ignition by up to 13.5 degrees crank angle (amount of retard depends on actual rpm) - hence drop in performance sometimes perceivable; the higher the rpm, the greater the retard angle. 

Code16 front knock sensor faults are most commonly caused by a poor quality wiring loom section between the ECU and sensor connector. It is rare for the sensor itself to fail, but not impossible. You can help the situation by ensuring that the sensor connectors are clean and secure and the sensor is tightened to the correct torque setting (20nm). It is also worth checking the twin core wire attached to the sensor. There is one particular area where the integral sensor wire enters underneath the plastic engine cover (to the connector). Check for breaks in the wiring here; this can be caused by the engine cover rubbing against the wire. If you really suspect that it is a faulty sensor and not wiring then try swapping with the other good sensor (on the opposite cylinder bank) to confirm. It was rumoured that the knock sensor wiring loom was improved on later ('96 >) V6's. This does not appear to be the case as late V6's are known to suffer from bad KS wiring loom problems too. 

If you've checked for wiring chafes/breaks, cleaned the connectors, swapped sensors over and  you still experience an intermittent knock sensor fault, the only answer is to replace the wring between the knock sensor wiring connector and the ECU. Unfortunately (unlike the 16v) it's a single cable from sensor plug to the ECU and runs through the engine bay bulkhead to ECU. Replacement of the poor quality degraded wiring is the only way to fix this problem.
Use of good quality, high temperature, shielded wire is highly recommended (avionic grade wiring).

You may get away with just replacing the loom section (two wires for knock sensor) between the knock sensor connector and the engine bay bulkhead. Where you need to splice back in to the original wires make sure you use good quality connectors or soldered joints. If you think about it the front knock sensor loom is probably the longest section and it runs over the top of the hot running V6 engine. Close proximity to a very hot engine, long length of loom and substandard original loom quality all contribute to making this a common fail point.
In addition to replacing as much of the loom as you can, you may also see some benefit from fitting 'ferrite rings'; just like the ones you see on computer monitor cables.