You don't make characters into Cygnus Knights, you make them separately. If you want your DK to level faster, then after the Cutscene that shows up when you log on with that character, you get an NPC Dialog from Neinhart, if you accept what he says, then you're sent to Ereve where you have to talk to Cygnus or Neinhart, don't remember which, and you make a Cygnus Knight character through that NPC. You don't need to delete any characters either, it'll create a slot on it's own.
The way it helps you level up is, every 10 levels for your Cygnus Knight, you get 1 Weapon Attack (among some other stats) for the character that created the Knight. It works the opposite way too. The Cygnus Knights gets 1 Weapon Attack (among some other stats) for every 10 levels your main has.