One of the most important measures to maintain organizational sustaining competitive power is knowledge management (KM). The key step in the course of KM is to turn disperse individual knowledge into organizational knowledge and turn explicit knowledge into tacit knowledge. And when knowledge is transformed knowledge creation should be done synchronously because only by creating new knowledge continuously can organizational tacit knowledge that is difficult for other organizations to imitate in a comparative long time be attained. At first, the definition and classification of knowledge is introduced compactly in this paper. Then, the mechanism of knowledge transformation (KT) in KM and knowledge creation (KC) in KT is analyzed carefully. Finally, this paper draws the conclusion that the process of KM includes knowledge explicitization, KC and knowledge tacitization.