The Lost Knight makes stops at these 4 villages (all 4 edges of the map):
Tebandra (Vaegir, near Wercheg)
Aldelen (Nord, near Tihr)
Dugan (Khergit Khanate, near Tulga)
Ruldi (Rhodok, near Veluca)
He will stay at a village for some time, then travel to one of the other villages, often cross-country, so travelling near Dhirim and Praven often can increase the chances of running into him.
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You get the legendary weapons from loot. They're not in the Secret Lake Dungeon.