I always wrap atleast my horse's front legs. It's just a safeguard against injury, like shin splints, or strains and sprains. Especially with young horses, it is a wise choice to get them used to wrapping. Alot of people will tell you that it will weaken the horse's legs, but considering they are only wrapped for an hour or two, compared to being unwrapped, 22 hours a day and they will do all kinds of moving about in that time? I don't really believe that myth too much. I just like to know that when I am working with him, that his legs have a bit of protection there.
As far as how to wrap, you will start at the middle of his cannon, and wrap down the leg and back up to the knee. You want to wrap it fairly snug, but not so that it will be cutting off circulation; you just don't want the wrap to loosen or start falling down the leg, as that is counterproductive to wrapping.
Generally you don't wrap the knee itself. If the horse does have some sort of knee injury, there are different types of knee wraps available for that.
"The ideal horseman has the courage of a lion, the patience of a saint, and the hands of a woman..."