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Example:

My Dreadknight wants to Multi-Assault two different squads because their bases from one model from both squads would be touching my DK, is this acceptable?

My opponent argued that when I assault, I can only assault one squad with my DK and have to face my base to be positioned to where it can't touch the other squads base. So instead of having my DK fit between both squads, I would have to face one of the squads instead.

Is there anything in the rule book about this issue? Or is my opponent wrong.

The single model unit can not assault two units.

P.28 Move Initial Charger section has the details.

Example, Green and red are units from different squad, could I go inbetween them or do i Have to pick one of the squads (in this case, green is more important on my standpoint)

You pick one squad and then move the shortest possible distance to engage it.

So you can't go in between.

EDIT:
I could only see this working if you have to go around another unit to engage a unit and the model you wanted to engage was very close to the 2nd unit's model.

Ok, BUT if both of the squads were closely packed, could I have multi-assaulted?

The first model in an assaulting unit must be moved into base to base by the shortest most direct route possible so if you have two squads positioned like that, your dreadknight may be able to touch the other squad while assaulting the closest model of the unit you have declared the assault at.

Either or, in my game this move was crucial as it could have determined the result of the game I was playing. Only reason I was making a big deal about it.

This doesn't actually work.

"... a charging model is not permitted to move into base contact with a model in a secondary target, unless it cannot move into base contact with an unengaged model in the primary target."
Rulebook, page 28, second paragraph.

So even if they did happen to be perfectly placed so that the shortest movement onto the primary target puts you also touching a model from the secondary, the rules specifically forbid you from moving a model onto both primary and secondary units.

And IIRC, there is still a statement to the effect that only the 2nd and later models can assault a differnt target unit............