Knob-and-tube (K&T) wiring was at its peak in popularity between the years 1880 and 1930/40, serving buildings the best way available at the time (it is now obsolete).  K&T wiring is not inherently dangerous in itself, but hazards can arise from handyman modifications and insulation enveloping these wires over time.  

K&T wiring is not grounded, so it cannot serve 3-pronged appliances/outlets.  This type of wiring is not available for new construction, but is not required to be removed in older construction either.  This being said, I personally recommend you remove K&T wiring and have it further inspected by a qualified electrician to be on the safe side.