Was it popular because it was good, or because it was shock value to get more people talking about it? Yes, Batman getting his back broken was a big deal, just like Blink 182 was a big deal in the '90s.
What you have to understand is that
that's all that we had at the time, both in terms of quality and quantity.
I mean, we had Year One and Dark Knight Returns - but other than those and a few smaller graphic novels (like Shaman, Prey, and Killing Joke), books and stories like the Knightfall trilogy were amongst the cream of the crop. So it was important then, and still is to some degree today.
You mentioned Hush, Long Halloween, Dark Victory, etc. But those are all products of the last decade and a half, when Batman books (and comics in general) exploded in terms of both quality and sheer number of available publications of collected stories and graphic novels.
Before that, in the early-to-mid 90s, a Batman fan's bookshelf had at most a dozen graphic novels - and KnightFall 1, KnightFall 2, and KnightsEnd were three of them.
So it was good relative to most other Batman stories, and it was also one of the few collected, long-form stories that were easily collected and read. And for those reasons, it is still of importance to Batman fans. Not as monumental as Long Halloween and Year One, certainly, but definitely a step above books like The Cult and Blind Justice.
And like someone else mentioned - there are a few solid "eras" or "periods" in the modern history of Batman. He starts in Year One era, and then we get the Dick Grayson years (Dark Victory and beyond). And one of those eras is KnightFall, whose events not only take up a solid year (at least) of Wayne's life - they also involve a lot of change and character development.