The Shadow Knight at first may appear a difficult character, what with sanity loss from several common things - flowers, rabbits, even nearby birds cause him to lose sanity. However, if you follow a few simple steps and guidlines, he is one of the most powerful - and fun - characters to use.
The First Step: There is no doubt in my mind what your first goal should be: find a patch of (prefferably several) evil flowers. THESE are a Shadow Knight's best friend - standing nearby gives you EXTREMELY rapid sanity regen, ensuring that the sanity penalties from the world around you cease to be quite such a concern. Once you find your flowers, you can start with the real fun.
Spellsword: The Shadow Knight is essentially a blend of magic and warrior traits, but he excells most in close combat. His Evil Sword recovers 5 hp with each hit, and deals a whopping 40 damage at level one - on ttop of that, his base health bar is 250, meaning he can withstand a decent amount of punishment even without using his incredibly powerful sword. Fighting goblins at an early stage is never a bad idea with this guy - the sooner you can get the Pot Hat, the better. After obtaining this helm, another good idea would be to create a science machine, and make the Log Suit. Combined with the Pot Hat, you get a 50% damage reduction - not bad for a level 1 character. Farming the goblins can also yield better armor. If you can, get the Armor of Fire - lesser, normal or greater, it will let you easily explore the mines later on. The Magic aspect of the Shadow Knight has to do with his powers at later levels - a good example is thee Shaodw Beast. With no cooldown, the ability to send him remotely to attack enemies, and no penalties if he is killed- you can instantly summon him back - he is a massively powerful companion, allowing you to kill even significantly powerful enemies such as Orcs with very little risk.
The Caves: The Shadow Knight also excells in caves, due to a lack of sanity loss from the darkness around you. The fields of glowing flowers provide a safe space in between, and think through your next move. Giant tentacles are incredibly useful, especially if there are flowers nearby - the flowers provide light(so you don't have to make a fire pit - and when you attack them, the tiny tentacles can easily be avoided. Each of those tentacles are worth 10 xp, and die in one hit - power leveling here is power leveling becomes highly viable in these locations. Also, the tentacle itelt, once retracted, will give you plenty of resources AND, if you attack the hole in the ground, can give you nearly infinite potential for free health. This means both Health and sanity are no longer a concern, and you can divert the majority of your attention to gather ing food. Stun lock from your sword also keeps Spiders and related entities - warriors and poison spiders and such - from being able to hit back. Free health, and easy food - as the penalty for eating monster meat is sanity and health. If you follow these rules, and try to follow these guidlines and steps, you should have minimal difficulty - and a lot of fun - playing as the shadow knight.
(Personcal Note: the writer of this article wants to play the wizard, but cannot get the hang of it - anyone who could write a guide for that, please do so!)