That's interesting. A few forums I have read say that when certainty is expressed, you should NOT use the subjunctive. Someone even mentioned that Dante didn't use the subjunctive for a person expressing certainty! You would, however, use subjunctive with questions of this sort (e.g. "Sei certo che...?") or negatives, of course ("Non sono certo che...") I wonder if the use of the subjunctive for expressing certainty varies somewhat according to region or a person's style? (are you Italian?)
EDIT: Also, my textbook Prego states: "Expressions that denote certainty and that therefore take the indicative include phrases such as "so che/ è vero che/ sono sicuro che/ sono certo che/ vedo che/ è ovvio che/ riconosco che."
I was referring to marziotta's comment "sometimes when the sentence is introduced by "Sono certo" and similar things, the subjunctive is not 100% needed (only indeed highly recommendable). My understanding is that, in standard Italian, you never use the subjunctive when the sentences starts with "Sono certo" and other expressions of certainty. You must use the indicative. That's why I wondered if there are regional/ style differences or perhaps it depends on the context. For example, sometimes people say they are sure when it is clear they are not sure... You can learn a lot from native speakers that you can't learn from textbooks! :)
Thank you marziotta, as always you are very, very helpful.
The comment of Thoughtdiva might explain why the mistake made it into the Duolingo database.
The sentence looks like it is expressing certainty (he knows), but the actual message is "I suppose..." which is uncertain. So the course designers looked at "he knows" and thought they may not use subjunctive while they should look at "I suppose" and have to use subjunctive....
I agree with webMan1. "lo' is the direct object pronoun for either him or it. Yesterday in the same type of sentence I answered "it" and was marked wrong because it should have been "him". This happens a lot when there is more than one correct answer to a translation, why are we marked wrong if there is no way of telling which you want.