The Laser activated KITT's Laser Power Pack, mounted right under KITT's scanner. KITT can fire a high powered ultra-frequency modulated laser capable of burning through steel plating. Like most of KITT's components, the schematics for the laser device are classified.
("Goliath"; "Soul Survivor")
The only thing KITT has to deflect the Laser's bolts are a set of High Tinsel Reflectors.
("KITT vs. KARR")
The Laser was also referred to by Michael and KITT in "Knightmares". The Laser Power Pack seems to be a updated form of the Resonating Laser first used in "Trust Doesn't Rust".
The Laser button was later made into two buttons for Season 3 and 4: Arm Laser and Aim Laser.