Nail the Ghosts?

I am brand new to the game, and I am having a massive dilemma. I love the story so far but a lot of it is confusing. I have the Dream Nail but I'm not entirely sure what to do with it. I sliced a ghost early on and I felt so bad about it I had to restart.

Without spoiling too much... should I / should I not use my Dream Nail on the ghosts? Also, what's the deal with the Ghost Knights? Does fighting them or / not fighting them affect the game?

Many thanks!