The Green Knight is a mysterious Knight that can be recruited during Sir Gawain's quest. During the quest, you find the Lady Isleut and talk with her. If you are a believer in the Old Faith then tell her that her place is here, and you will get the option of Recruiting the Green Knight. The Green Knight has high magical talent when you first recruit it to your Round Table.
Choosing the Green Knight makes it impossible to get Sir Gawain or the knight he sent to retrieve Lady Isleut.
The Green Knight is a mysterious entity being neither Human nor Sidhe. It is possibly the spirit of Bedegraine Forest or an entity that believes it is. Other theories include it being the spirit of a Druid imprisoned within the forest.