Using the elliptical is a great way to stay in shape and put minimal pressure on the knees. Gliding sports such as ice skating and roller blading are effective too as long as the pushes aren't too hard. Swimming is also a good sport for those with bad knees.
Bicycling is a great activity for people with bad knees. Since you don't have to support your weight with your legs, there is very little impact on your knees.
Any sport in which there is not a lot of pounding on the knees. Some examples would be swimming, golfing, bowling, croquet, water polo, lawn bowling, badminton, horse back riding.
Personally, I would recommend fishing. You are basically sitting all day long waiting for a fish to bite. You can cast the reel with upper body strength. It is really relaxing and will have no adverse effects on your knees. Plus you will have food for dinner if you get lucky.
