Since it is so easy to be fatally wounded in knife attacks, and most people realize this, it is not likely that even a group of unarmed people will be willing to attack someone waving a knife at them. Why, then, would I engage in a practice that is based on such an unlikely situation? What's wrong with practicing blending and flowing without a knife? What specific benefit does the introduction of the knife into the situation offer to the development of blending?
Why engage in that practice? Because if you're going to use a knife, you should engage in flow drills. This is just one such type of training. To use a knife, you should practice. In fact, I've read that some koryu had kata where nage/tori was armed and *won* the encounter against an unarmed uke. So, IMO, the practice is valid technically.