Quoted from fattdirk:
So I had the knights challenge insert lit once but had a brick power drain and failed. I believe you have to spell knight on the playfield by hitting so many shots in modes and that gets you into the retro mode. I haven't done it yet so maybe someone else can confirm.
You get knight letters by completing major features which include enough shots or finishing a mode. You also get a knight letter every time you make a super jackpot in the main triple knight mode. Once you have spelled knight the retro mode will be lit on the far left spinner feeding the saucer hole.