What is the interpretation of the hadith that talked about cracking the knuckles? Is forbidden both during and outside prayers?
Cracking the knuckles is makrooh whilst praying, not all the time. Rather it is makrooh during prayer, because it will either distract the one who does it from the prayer, or it will disturb other worshippers.
The hadeeth that was narrated concerning that is not the words of the Prophet (blessings and peace of Allah be upon him); rather it is mawqoof and its isnaad ends with ‘Abdullah ibn ‘Abbaas (may Allah be pleased with him) and is his words.
It was narrated that Shu‘bah, the freed slave of Ibn ‘Abbaas, said: I prayed beside Ibn ‘Abbaas and cracked my knuckles, and when I had finished praying, he said: May you have no mother! [This is a word of rebuke] You crack your knuckles whilst you are praying?
Narrated by Ibn Abi Shaybah (2/344). Al-Albaani said in Irwa’ al-Ghaleel (2/99): Its isnaad is hasan.
Shaykh Ibn ‘Uthaymeen (may Allah have mercy on him) was asked: Does cracking the knuckles absentmindedly whilst praying invalidate the prayer? He replied: Cracking the knuckles does not invalidate the prayer, but cracking the knuckles is a kind of fidgeting, and if that is during a congregational prayer, it will inevitably disturb those who hear it, and that is more bothersome than if there is no one around him.
End quote from Fataawa Arkaan al-Islam (p. 341)
The Standing Committee for Issuing Fatwas was asked (fatwa no. 21349): The Prophet (blessings and peace of Allah be upon him) forbade interlacing the fingers in the mosque; does that include cracking the knuckles? Please note that there is no hadeeth which forbids it.
They replied: A number of the scholars stated that cracking the knuckles is makrooh inside the mosque, and they connected it to interlacing the fingers, because both come under the heading of fidgeting.
End quote from Fataawa al-Lajnah ad-Daa’imah – 2 (5/266)
See also the answer to question no. 36801
And Allah knows best.