Thanks MrFriendly, glad you're enjoying the game!
Not sure about a rule that says lawyers have to report being a victim of a crime--I don't think that's the rule in California, but someone is welcome to show me otherwise. They did report the crime anyway, though, when they went to the hospital. And Rockford's telling Sean to let the blonde woman leave shows us a juxtaposition between those two characters. We might expect a stereotypical public defender to be the more sympathetic one and not as eager to get the criminals punished, and we might expect the criminal prosecutor to be insistent about calling the police and getting justice. Instead, both characters play against their stereotypes. This also suggests something else about Rockford which he will voice more clearly later in the story: he strongly believes that the choice to report being a victim of sexual assault is a very personal one, and he won't pressure the blonde woman to make a formal report if she doesn't want to.
I do think the stabbing serves several functions. First, the mere presence of the knife ratchets up the tension of the scene.
Second, his getting stabbed tells us a lot about Rockford. In contrast with the Superman figure some players might think they are playing, Rockford is terrified when he sees the knife. But on the other hand, when he does get stabbed, his response is anger. Both of these contrast with the cool, calm, collected protagonist we see in many other (excellent) stories who can easily disarm the knife wielder and beat the shit out of the other four guys attacking him. And simply the fact that he does get stabbed drives this point home; he is human and he can be hurt. He's even still complaining about being in pain the next morning.
His actions after the fight ends tell us even more about him. Even though he's just been stabbed, apparently his concern is for the woman, as he tells Sean to check on her instead. Then, after she's gone, he doesn't want to go to the hospital; he'd rather stitch the wound up himself, something he's apparently done before. This suggests he may be a very independent person, used to solving his own problems, especially given what we've already learned about him by that point in the story..
Third, as a narrative tool for that scene, the stabbing provides a transition from 'Rockford is holding his own' to 'Rockford is clearly overwhelmed.' Once Rockford is clearly defeated, the gang leader steps in to stop things before they escalate further. His gang has established their dominance over these two cops, but he also knows it's one thing for them to have a scuffle, and quite another to murder a police officer. So Rockford is fighting back, he gets stabbed, he is subsequently overwhelmed, and now the gang leader ends the fight before Rockford is killed.
Fourth, and this is not obvious at all due to my poor choreographing skill, Rockford's quick response to getting stabbed is an example of his speed. If you've ever seen a video of someone using a knife to stab someone, they do it fast, and not once, but repeatedly. Rockford is quick enough that once he's stabbed the first time, he's able to grab the assailant's hand before he can get a second shot in.
Finally, the stabbing will be relevant later on in the story.
Thanks for your comments! Hope you enjoy Part Two and hopefully you'll like the final two love interests!