It should be (and is properly) used only to check that the listener is following along.
"OK?", "Follow?", "Capiche?", "Get it?", "You know what I mean?"
...or to check whether the details need to be described.
"that place... you know... downtown..."
However, it has come into frequent use (especially by teenage girls) in place of "uuuhhhh" to fill space while someone's brain catches up with their mouth, or where the individual is completely unable to articulate a thought (and, hence, the listener does not, in fact, know).
See also "like" - "um, like, totally..." - commonly used in the 1980s-1990s.
Many people who overuse "you know" (or "y'know") also end every sentence with an upward inflection as if they were asking a question.