This article is from the Bicycles FAQ, by Mike Iglesias with numerous contributions by others.
Some riders believe that sticking the knee out or leaning the body
away from the bicycle, improves cornering. Sticking out a knee is the
same thing that riders without cleats do when they stick out a foot in
dirt track motorcycle fashion. On paved roads this is a useless but
reassuring gesture that, on uneven roads, even degrades control. Any
body weight that is not centered over the bicycle (leaning the bike or
sticking out a knee) puts a side load on the bicycle, and side loads
cause steering motions over uneven road. Getting weight off the
saddle is also made more difficult by such maneuvers.
To verify this, coast down a straight but rough road, weight on one
pedal with the bike slanted, and note how the bike follows an erratic
line. In contrast, if you ride centered on the bike you can ride
no-hands perfectly straight over the same road. While leaning off the
bike, trail of the front wheel causes steering on rough roads.