The Lic Plates are a function that allowed KITT to switch his license plate from "KNIGHT" to "KNI 667". Michael used it to evade a police officer who was tailing him and KITT after a All Points Bulletin was issued on them following their successful attempt to break a prisoner out. The deception was surprisingly effective.
Lic Plates was later designated LIC in Season 3 and 4, but Michael never used the function outside the one episode.
Lic Plates, like the Auto Phone, Blood Analyzer, and Tear Gas remained on KITT's dashboard the remainder of Season 2 even though it was never used again.