The headword form comes from Homer, Odyssey 13.401: "and I will darken your two eyes that had been most beautiful". The verb is knuzo/w, now considered derived from knuzo/s "dim, bleary-eyed". But scholiasts connected it instead to knu/w "scratch": it is accordingly defined as "destroy" (i.e. scratch out) by Herodian, De prosodia catholica p. 444 Lentz (citing Philoxenus fr. 120 Theodoridis) and Orion [Author, Myth], Etymologicum s.v. knuzou=n. The Etymologicum Gudianum s.v. knuzhqmo/s goes further to a)xreiou=n "damage, disable".
The Suda's "unseemly" may come from a misunderstanding of Philoxenus. Theodoridis cites Philoxenus fr. 120 after the Etymologicum Genuinum: "some derive knuzw/sw metaphorically from dogs [cf. kappa 1890]: kuno/s > kunw= > knuzw=, which is unseemly (a)prepe/s)." If that is the original text, Philoxenus meant the derivation was unseemly, and may have been misunderstood as saying that the verb knuzw= itself meant "unseemly". If that is a misunderstanding, it is early, because Herodian already reads: "some derive it from kunw=n > kunw= > knuzw=, but it is improbable and difficult to restore, from a metaphor from dogs, the unseemliness (a)prepe/s) of the eyes."
Eustathius, Commentary on the Odyssey ad loc., has his own derivations of the verb. First he offers "I shall shrivel, I shall make unseemly and shrivelled, like the eyes of sleepers, as they say; some say that dogs' eyes are like that too; hence knuzou=n looks like it is derived from 'dog'." After citing at length Herodian/Philoxenus' refutation of a connection with "dog", he also offers a derivation from knu/za "itch" (i.e. knu/zw "to itch", since the noun only exists in grammarians): "to be put to shame by mange."