Knocke, Ghent & Bruges
In case you don't find a place to stay in Knokke-Heist, as was the case with me (which ended up being a good thing as it was too cold to suntan and swim) I highly recommend you stay in Ghent or Bruges, or both!
I did that and ended up having a great time. I absolutely adored Ghent, which was very cozy, charming and beautiful, and Bruges was simply idyllic. Both are around an hour's drive from Knocke-Heist, and as the fair is a nocturnal one, it is worth staying in any of the two cities.