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I am going through community implementation guide , http://help.salesforce.com/help/pdfs/en/salesforce_communities_implementation.pdf

which has section on enabling salesforce knowledge in community. There are two things needed to do this. 1. need to have salesforce knowledge license 2, need to clone "Customer Community" profile and add Read on Article on the new profile.

My question is, does every community user needs to have knowledge license added as feature license ? Does this mean If I have 1000 customer community licenses I also need 1000 knowledge licenses ?

No where in the guide the license requirements are detailed.

Any information on this would be very helpful.

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Only if you want to make community user as a publisher or article manager you need license .All the community users don't need license .Knowledge articles can be read even as a guest user ,so you need only one license at least to get going . You can experiment this in your org for confirmation .

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Salesforce allows view access of knowledge articles to all Salesforce full license users. Managing a knowledge article requires Salesforce knowledge user license. For users not having full salesforce user license, their access levels can be referred from:- http://docs.releasenotes.salesforce.com/en-us/winter14/release-notes/rn_186_knowledge_everywhere.htm

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