The 25-year-old also dislocated the ankle and suffered ligament damage.
Welsh went down on the Whitten Oval wing at the start of the third quarter and was taken from the field and sent to hospital in an ambulance.
"You don't like to see one of your leadership group players or a guy who is spiritually as enormous for our footy club get injured," Knights added.
"The way he played last year and the way he was heading towards this season was extremely positive.
The incident occurred when Welsh slipped after being tackled. He let out a cry of pain and the umpire instantly signalled for the stretcher to come on.
Knights described the incident as a "fate collision", and said the surface of Whitten Oval had nothing to do with why Welsh sustained the potentially long-term injury.
"It's nothing to do with how he's prepared, or how many minutes he played. It's to do with the competitive nature of this great game of ours," he said.
"Culturally we love the competition and we love the body contests, but at times, the result of that is an injury like this.
"It was very much a collision injury in a tackle and I think it would have happened at any ground. The surface was pretty good out there and we are very fortunate to be able to get out here."
Earlier in the intra-club hit-out, new Essendon recruit Hayden Skipworth left the field after being crunched in a pack.
He was able to walk off but appeared dazed.
"He got a heavy knock. Either his head hit the ground or a knee hit his head," Knights said.
"It was a bit disappointing because he was in pretty good touch early. He got plenty of the ball and was distributing nicely and feeding out good handballs.
"He'll be fine. He's just a bit shaken up."
Young talent Kyle Reimers was seen icing his quad directly after the game, but Knights dismissed the injury concern.
"He's fine. For about six to eight weeks, he's had some soreness and tightness through his hips and thigh, and it's just precaution with him," he said.
"He's right on track for round one. We possibly won't take him to Darwin but he's very much on track for round one."
