Heya Scouse,
MTB shoes have recessed cleats so are much easier to walk around in. Road bike shoes and cleats are lighter and maybe more comfy - I have a pair of Sidi shoes which I've had for years and they are very comfortable, but if you need to walk they are a pain because the cleats are not recessed.
To use MTB shoes on a road bike or visa versa - you need cleats to match the pedals - so its a matter of selecting a pedal first, then getting shoes which will take the cleat.
I'm not sure what sort of bike you have - or if you do anything other than commute - but if you don't need to walk much with the shoes on, I'd go for road shoes with cleats/pedals of your choice.
For bad knees - you want plenty of "float" - which is movement of the shoe in a arc around the pedal axis.
Time pedals are very "floaty" - I love mine. Quality shoes are worth buying too, for comfort and longevity. My Sidis are 7 years old - not going to wear out any time soon.
Hope that helps - you will find a small learning curve with these pedals - adjust them to the easiest release setting at first, practise against a wall of something you can grab. The pedals will improve your efficiency greatly - think little cirlces as you pedal and you will start to pedal the entire loop.

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