I just ran across this reply in an old popular mechanics:
[quote]Knock Three Times
My father has a 2003 VW Passat with the W8 engine, and he uses 89 octane fuel instead of the 91 recommended. He says the knock sensor will adjust the engine timing to prevent knocking and engine damage. I contend that even if the driver doesn't hear pinging, that doesn't mean that it's not occurring, and can lead to engine damage. Can this lower-octane fuel damage his engine?
FREDERICK W.
LEONARDTOWN, MD
Your father will not damage his engine running any gasoline he can get in the United States, which might be as low as 87 in some areas. The knock sensors (many engines have more than one because they are bolted to the head, not the block) will sense the rapidly building pressure waves caused by gasoline igniting prematurely inside the combustion chamber. The engine-management computer will retard this spark and prevent this condition. The system is good enough at this to preclude any damage. The downside is that fuel economy will suffer from the retarded timing, making his bargain low-grade fuel less of a bargain.
found here