It’s a much nicer input mechanism to just click and drag left/right or up/down, or to use a scroll wheel (or trackpad scrolling).
What distinguishes a physical knob from a physical slider is that the knob affords relative movements, rather than absolute ones: you turn the knob with the same motion from every starting setting and your hand stays in the same place, whereas a slider has a distinct physical position corresponding to each setting. This allows control of knobs at various scales, from careful adjustments (“fine tuning”) up through fast dramatic changes. [And this is why the iPod wheel was such an ingenious input device.] Sometimes you want one type of control, and sometimes you want the other.
This particular software implementation, however, has the interface characteristics of a physical slider, not a physical knob. The visual display of these knobs is probably alright for some uses though, if you swapped out the mouse logic.
I really wish that browsers would get around to implementing mouse lock, so that it would be possible to construct interface widgets where a click/drag could perform some action without necessarily moving the pointer around the screen. http://dvcs.w3.org/hg/pointerlock/raw-file/default/index.htm...
Edit: to answer your question, I think relative adjustments are often appropriate in tools for picking or adjusting values, for everything from scrolling down a long page (witness the popularity of scroll wheels over clicking on scrollbars) to modifying parameters in interactive diagrams, to changing color or line width in vector drawing tools, &c. Physical examples of knobs are common: toaster settings, old manual camera controls, radio tuners, car steering wheels, pedals on a bike, fishing reels, hand drills, clocks & timers, and so on. Relative controls are underused in software, and I think showing them visually as knobs can be helpful in some cases, though getting the implementation details right is important.