I assume this is some USA wiring system, am I right?
Knob and tube wiring uses two separate copper conductors, each isolated by cotton cloth or soft rubber. The conductors are strung tightly through the cavities of your walls and floors, and depend on being separated by air in order to avoid overheating. When going through joists, the wires pass through porcelain tubes. In the wall and floor cavities, they are attached intermittently by porcelain knobs.
Knob and tube wiring was commonly used in North America from the 1880s through the 1930s.
Wikipedia has a pretty good explanation with pictures.