Your timing chain sprocket looks screwed..looks like your timing chain was slapping around then jumped. Judging by the knock marks in the top of the piston the valve timing went off..
The knocking sound was the piston hitting the valve..look closer!!
The chain rub marks on the inside of the engine cover is the least of your problems.
Change your oil once in a while..look at the sludge in your engine!!
Junk engine!!!
Current toys..
1986 Honda 350X..trail bomb!
1985 Honda 250SX..my main mudder
1985 Honda 250ES..Back in Black Trike
Current non-trike toys:
1990 Honda TRX300FW
1995 Seadoo GTX
1998 Polaris Indy Lite 340(Nearly new looking)
1998 Polaris Touring 500
1998 Club Car (electric)