With walking, the clam-like split may allow fluid to enter, but a valve-action hinders it from leaving. Fluid pressure builds up inside the cavity.
Eventually the fluid pushes out the outer rim of the meniscus.
How to diagnose a meniscal cyst
Meniscal cysts are more frequent on the lateral side of the knee, often in association with a horizontal tear of the meniscus. External rotation of the tibia may cause the lateral mass to become more prominent, while internal rotation of the tibia may cause the mass to completely disappear. Ultrasound may be useful in establishing the presence of fluid in the lump, and the diagnosis can be confirmed with MRI.
Meniscal cysts. Lantz B and Singer KM. Clin Sports Med. 1990 Jul;9(3):707-25.
A contribution to Pisani's sign for diagnosing lateral meniscal cysts: a technical report. Pinar H, Boya H, Satoglu IS and Oztekin HH. Knee Surg Sports Traumatol Arthrosc. 2009 Apr;17(4):402-4. doi: 10.1007/s00167-008-0718-4. Epub 2009 Jan 31.
MRI characteristics of cysts and “cyst-like” lesions in and around the knee: what the radiologist needs to know. Perdikakis E and Skiadas V. Insights Imaging. 2013 Jun; 4(3): 257–272.