“forsworn” (56). Touchstone means that the knight has sworn falsely (that he has lied or committed perjury).
Both Celia and Rosalind are puzzled by Touchstone’s conclusion and ask him to explain. The following dialogue then follows:
TOUCHSTONE: Stroke your chins and swear by your beards that I am a knave.
CELIA: By our beards – if we had them – thou art. (59-61)
A knave is a rascal or scoundrel, a person lacking honor. Touchstone is playing a game with the two ladies, and Celia is playing along. Touchstone then explains that by swearing on their beards (which they do not have), Rosalind and Celia have committed a type of lie. To swear by something that does not exist is an indication that the statement is not true.
By the same token, as Touchstone explains, the knight was also lying because he swore on his honor but “he never had any” honor (64). The quality of the mustard and pancakes is not at all the important part of the story. What is important is that the knight used the expression “by mine honour” when, in fact, he never had any honor in the first place. Touchstone has just told a good joke. Like Celia and Rosalind, the members of Shakespeare’s audience are wondering about the pancakes and mustard (and not the expression regarding honor) and thus fail to understand Touchstone’s conclusion until he explains it.