You need both. Just dieting will lose muscle mass as well as fat, resulting in lower metabolism. You'll then gain weight again, diet again, losing even more muscle mass. Years of this will leave you in a really bad state. Lift weights, and eat a healthy diet that fuels your muscle.

I think op should be asking "how do I weight train as an overweight person with bad knees?"

I disagree with this logic. Try training for a half marathon and not lose weight.