What happens when you crack your knuckle a lot?

The urban legend is that cracking your knuckles causes arthritis. This not true.

What happens is that when you hyper-extend a joint the synovial fluid (joint lubricant) decompresses and releases its dissolved gasses. The cracking sound comes from the gases rapidly being released from the fluid.

Medical problems can develop from knuckle cracking. These include hand swelling and loss of grip strength. These are related to soft tissue damage not bone damage.