The quick answer is that many of them did know before what we now know as the Holocaust began. During the T4 programme that ran from 1939 to 1941 Germans who lived in the area's around the killing sites most certainly knew what was going on inside these places. There are many reported cases of worker at these places getting drunk in bars a lot to try and drown their conscience and blurting out what was happening in the Brandenburg Euthanasia Centre. So the answer to your question is throughout the war if you lived near a camp you basically knew to a certain extent what was happening in those places. Rumours spread throughout Germany on what was happening but in some ways there was almost a doublethink going on in Germany. You knew in your gut that something very bad was happening to the Jews but in your head you deluded yourself into thinking it was fine for them that all Jews were been treated fairly and working hard. Now once the full extent of the atrocity was known their were a variety of reactions. I think the best way to show you would be with a picture from the Holocaust Museum in Washington.

http://digitalassets.ushmm.org/photoarchives/detail.aspx?id=1175238&search=&index=5

This is a picture of German Soldiers looking at footage of a concentration camp luckily in this case two photographers were taking photos so we also have another angle showing what they were looking at

http://digitalassets.ushmm.org/photoarchives/detail.aspx?id=1175239&search=&index=3

So you can see there are a variety of reactions from horror and recoiling covering your eyes trying to act as if it didn't happen and others staring coolly out taking in what is on the screen.