In the late medieval period, from a purely equipment-focussed standpoint, a Knight was almost indistinguishable from a commoner with expensive equipment i.e. the man-at-arms. However, being a Knight was more than having fancy gear.

To find the origin of the Knightly class, let's go back to Roman days. Here, the class that could afford horses (Equo means horse in Latin) were called the Equites. They were not of the senatorial class, but were noble and definately a step well above the common citizens or the plebs. As their name would suggest, they were the cavalrymen of the Roman Republic. The Equites were a landowning class who used the income from their farms (which they sometimes worked themselves along with employees or renters) to pay for expensive horses and equipment.

This trend continues throughout history. Being a Knight was initially not associated with the ability to afford armor and weapons (it was important indeed, but not essential). Instead, being able to own and maintain at least a few warhorses was seen as a far more important feat. For example; coming into the high period around 1000 AD, there was a specific class in France called Chevalliers (literally: horsemen as chevaux is French for 'horse'). They were heavly armored soldiers on horseback, who were given pieces of land by their lieges to pay for and support their horses and equipment. In return for lending the land and receiving the income, they were required to provide military service to the lord. And see: our modern definition of knighthood and feudalism. Indeed, the word 'knight' itself was probably loaned from the French word 'Chevallier' and came to England with the Norman conquests. In Latin texts, they are simply referd to as Miles or Milites, which stands for 'soldier'.

Right around the time that Knights became a landowning (or at least, loaning) class in medieval times, we see that their title and land often becomes hereditary. A son would follow in the footsteps of his father and become a knight as well, eventually inheriting his fathers' lands, titles, rights and duties. Being a knight became tied with your bloodline and birthright. We know many examples of poor Knights who had no land and simply traveled the land or joined the crusades. They were however, still considered Knights by all standards and treated accordingly. They were definately a step above the common folk.

And even though, in the late medieval period, the man-at-arms (rich freemen or citizens) were able to afford high-quality equipment on par with the quality of a knight's equipment, being a Knight was still very much a matter of blood and birhtright. If you were a knight, you were noble. Simple as that.

As for my sources, I relied heavily on The Reign of Chivalry by Richard Barber. It's a little dated however. I also used several Dutch books: Uitweg uit Normandië (A Way Out of Normandy) by dr. A. van Kempen about William the Conqueror, Norman Knighthood and the Bayeux Tapestry. Also I used one of the books used in my history study: Istvan Bejczy's Een Kennismaking met de Middeleeuwse Wereld (an Introduction to the Medieval World).

EDIT: Comment Formatting