I always put a stencil on with the body in it's natural resting position. If you bend the knee to stencil it, what's it going to look like when the person is just sitting around?
I haven't done it yet, but would apply and tattoo while the knee is straight ...
first, because I think the natural position to show the tat is standing and not like "wait, I have to sit down to .."
second because the skin is not too pre-stretched and you can move it a bit as you like while tattooing
of course, if you do something that should be seen when someone sits or for people f.e. in a wheelchair applying the stencil in the sitting position would be the right way to go ..
When applying stencils for tattooing elbows or knee joints (assuming they are normal healthy and not disabled people)...I always try and have them in a natural straight standing position with arms resting by their sides...and try to steer clear of complicated designs that will easily be warped or distorted on arm or leg joints....so no faces or crazy intricate patterns that would exaggerate such distortions....