What sort of knowledge differentiates a good SEO from a great SEO?
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This is definitely more of a discussion than a clear cut answer.
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First and foremost, you want to avoid SEOs who don't understand Google's Webmaster Guidelines. Now, that might sound like a stupid requirement because "doesn't every SEO understand the webmaster guidelines?" Fact is, they don't and that is why huge numbers of websites are suffering from Panda, Penguin and other penalties. In many cases their SEOs did that to them because they built spammy links, made spammy content, etc. Hiring an SEO is like picking up a snake and hoping that it isn't a rattler. Be careful and know your snakes and understand webmaster guidelines so you can look at the work that the SEO is doing for you and determining if it is going to get you into trouble.
Next, there are lots of SEOs who will take on any job at any budget. You might go to one of them unknowing the competitive level of your websites niche and tell the SEO that you have $5000 per month to spend.... and your niche is "digital cameras". Your SEO needs to gauge the cost and methods of becoming competitive in that niche and bring your site into the money and earn a positive return sometime before your funeral. Digital cameras? Is that a $500 per month or a $5,000 per month or a $50,000 per month or a $500,000 per month attack? If the SEO accepts you at $500 or $5000 per month then that SEO probably doesn't know what it is really going to take to become competitive in that niche, or he just cares about milking you for your money month after month and just stinging you along for as long as he can. Here you have ignorant SEOs who will take your money and work for you not knowing that the amount you are paying isn't enough to fund a proper attack. Then you have the ones you don't have the integrity or the courage to turn down paying work even if they know that the budget isn't enough to move the needle. They just want your money.
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