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So my knight was in close combat with my opponents demon hordes while my troops were safe behind the knight and out of reach from the melee. In charges the Kharn the betrayer, kills the knight were upon the demon hordes pile into my troops and wipe them out too. Long discussion ensues about the interpretations of the fight phase rules witch come to involve the neighbouring tables as well. Final consensus was that it was not a legal move but we ask if this was the correct conclusion?

Unlike in previous edition, consolidates happen after you have finished fighting.
If a unit has not charged during their previous charge phase and all their opponents are defeated, they do not get to pile-in or consolidate, just like any other unit that does not have enemy models within 1" of it.

So yes, you made the right call for the daemons, though Kharn himself might be allowed to consolidate into your troops after smashing the knight.

It depends on whether his daemons had declared your troops in the charge phase or not. They can declare a unit. Successfuly charge a second unit, which is destroyed before they are activated to attack, and pile into the unit they were out of range/blocked from before the other unit was destroyed.

You don't have to be within an inch to pile in or consolidate. You only have to have made a successful charge in the previous charge phase.

I use this all the time with my bloodletters to get to as many units as possible in the charge phase.

When a unit is selected to fight, it does three things: it piles in, it attacks, and it consolidates.

Kharn and Berzerkers can be chosen to fight twice per Fight phase, so can do it all twice.

Any unit that is either currently within 1" of an enemy, or declared a charge this turn can be chosen to fight. This means that if Kharn or a Berzerker squad charged, they can be chosen to fight twice - even if there are no enemies within 1". Note that they can only make attacks against enemies they declared a charge against, though.

So Kharn could have consolidated after killing the Knight, and then as part of his second fight activation, piled into another unit. If that's not enough to reach combat, he could have then consolidated another 3".

However, he would only be allowed to attack units that he declared a charge against, and any units now within 1" of him can attack him.

As a Khorne player, I've made it a habit to declare charges against everything within 12", unless I'm unlikely to actually get into combat with them, or if their overwatch would hurt too much.