K.I.T.T's Bio-Nano skin was developed by Kai and Rei. Each Bio-Nano is made up of amino acids. There are two types of Nano circuit that the amino acids make up. The skin is extremely versatile, allowing K.I.T.T to change color, license plate, and even become invisible.
He can display information anywhere on his body. In high definition as well, because of the microscopic quality of the Bio-Nanos.
He can also scan anything touching the skin. Since, the Bio-Nano skin covers his entire exterior, he can scan a fingerprint even if someone touches his underside.
The skin also gives him some measure of protection, but the Molecular-Bonded Shell takes the brunt of things like gunfire and missiles. The Bio-Nano Skin just enhances that protection. It also protects the Molecular-Bonded Shell from the acids that it is vulnerable to.