Sounds like your PowerFC is running a default map or is incorrectly tuned or has forgotten it's map. This can happen if it's a new PowerFC, a second hand PowerFC from another car or if its broken.
Either way if the knock sensors are maxing out the bar graph you are minutes away from popping your motor if you keep driving it like that. You've probably already done considerable damage.
You need to stop driving it and take it to someone who knows what they're doing pronto.
The knock reading on the PowerFC is displaying what the knock sensors in your engine detect. . Knock, also called pinging or pre-ignition and is generally the result of the air-fuel mixture igniting or exploding prematurely. This is obviously going to cause problems in the cylinder if the crank wants to push the piston up but the igniting/exploding and thus expanding air-fuel mixture wants to push the piston down. Results - blown rings, pitted pistons, bent rods, engine damage, none of these are good.
If you really are seeing the engine light flash and the knock reading go way up you really need to stop driving it. Higher octane fuel or octane boost is not going to solve your problem AT ALL.