A study performed by the Journal of Neuropsychiatry & Clinical Neurosciences in 2011 indicated that knitting could enhance neural pathway development, and aid in cutting down the risk for cognitive dysfunction and memory loss by 30-50 percent in later years.
A 2013 survey published in the British Journal of Occupational Therapy asked 3500 knitters about their mood before and then again after a bout of knitting.
A significant improvement in mood was seen, with only 1 percent feeling sad and with 81 percent feeling happy after knitting, More than half of the participants said they were "very happy" after knitting.
The article on Psychology Today suggested that the act of looking from one side to the other as when knitting has proven to be beneficial for trauma victims according to therapists using Eye Movement Desensitisation and Reprocessing (EMDR).
Betsan Corkhill, a British physiotherapist has said that this type of eye movement can enhance memory by as much as 10 percent when it's done for just 30 seconds a day.
Corkhill said that knitting can be a great thing for people with time on their hands. Disabled or chronically ill people, or people who are out of work may find that knitting can help to fill empty hours and create a sense of purpose and accomplishment that may otherwise be lacking for them.
Catherine Carey Levisay, a clinical neuropsychologist said that the neurotransmitter dopamine, a natural antidepressant, is released by the reward center of your brain when you do things you enjoy, according to an article on CNN.com.
Knitting exercises your memory and your attention span. It also requires creativity and your ability to solve problems.
Levisay said that knitting enhances "visuospatial processing" which is to say, you become more able to analyze and understand things like depth and distance perception, mental imagery and navigation.
As you manipulate things in your world, and figure out how to create what you have in your mind's eye, you are using and developing these processing skills.
These researchers have all explained things better than I could.