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Let's see if I can break this down for you.
The knee is made up of a lot of parts. In the front of the knee, you have the patella (kneecap). The femur is above and the tibia and fibula are below.
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At the back of the patella, there is a bean like "part" called the fabella.
Picture copied from here.
When there is a problem like this, the problem is usually centered more around the ligaments of the knee than the knee itself. You will often see torn cruciates and other ligament issues before you will see a bone break.
The tendons around the knee are what give it its mobility and strength. When these tendons and ligaments are compromised, you have pain.
It takes all the parts working together to make a healthy knee.
Does this help to answer your question? I fear that my response has been too broad. Let me know if you still have specific questions about this.
It's pretty unusual, especially in a dog this age. Usually, if you see this at this age it is because of a birth defect or other birth problem.
Much like patella luxation and heart defects, this disorder is often inherited.
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Yes. You did.