First off, the attackers (the unarmed mob) don't react to any damage they might receive from the weapon because that makes the practice harder. It's hard to guess at what kind of damage you might inflict on a cut, and hard to guess how different people will react to it. Some people receive lots of damage and keep coming, others get a paper cut and go home. So in the practice we make it a worse case scenario.
They do try to treat the knife as if it's real, but they also have an objective to achive-take the armed man down. doing it without getting cut/stabbed is the objective, but that objective is very hard.
My problem is with the part I placed in bold. When looking at the video, the attackers did not seem to care at all about being stabed.
When approaching a person with a knife, most people I have heard of would be very careful, and even frightened. The knife would create a space around it (you can even see it in planned and well reharsed demos done with a real blade - people grasp the real danger of errors and behave differently.
Every other impression I may have had is clouded by this issue.
Further, most trainees hardly seems to try and do anythong against their attackers, at most they resist passivly. It seems like they are not ready yet for the chalenge of being rushed by so many people in such confined space (a very difficult challenge). Practicing with resistence and scenarios is great, but it should be done in the right develpmental stages of your students (rather then you).
If you wish to keep this route, aI suggest to adjust the level to one your studnets can succeed with, at reasonalble levels for a learning process to occur (~3/4).