Undead Knight is the animated skeleton of a knight, found in the Firewine Ruins, that has betrayed his companions, cursing both himself and his comrades to the life of undead.

Strike me down... take the armor back...

From him you get Ancient Armor which, along with the  Idol of Kozah, can be traded to the Ghost of Ulcaster for the sword  The Vampire's Revenge, for what it's worth. A better deal is to take the Ancient Armor to the Ghost Knights, also in Firewine Ruins, to end their curse, complete the Ghostly Knights in Firewine quest, and win a 1,500 xp reward.