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@Matter
The reason why it removes "grainyness" is based on the fact that a certain pixel in one frame has the grain-effect, but the two pixels in the two adjactent frames are enormal. Hence it's being corrected and the "grainyness" disappears. BUT this doesn't blur the picture unless you use a very high setting.
@Peters
That's actually only half of the story.
If you push the edit button on GKnot you'll see that the noise filter is actually a combination of various decrees of TemporalSmoother and SpatialSoftenMMX. TemporalSmoother reduces the delta information between frames, SpatialSoften reduces the noise by blurring the image inside one frame.
Btw, used in conjuction they don't increase compression over using just TemporalSmoother alone. But SpatialSoften blurs a whole lot more than TempSmoother so don't use it unless you've got very bad noise.
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