Did Karl Marx know the difference between dot Indians & feather Indians?

Yes. He had been to University. But he often got them confused because his IQ was low. 

The following is from Das Kapital

When machinery seizes on an industry by degrees, it produces chronic misery among the operatives who compete with it.

Why compete with a machine? Suppose my wife had tried, even in the most luckluster manner, to compete with my Dyson, do you really think I'd have voided the warranty on it? 

Where the transition is rapid, the effect is acute and felt by great masses.

The benefit is gained by everyone. However, there can be transitional 'structural unemployment' for some. 

History discloses no tragedy more horrible than the gradual extinction of the English hand-loom weavers,

Fuck off! The harrowing of the North was the worst thing in English history. 100,000 died.   In Yorkshire, 75 percent of the population perished.  

an extinction that was spread over several decades, and finally sealed in 1838.

the spinning jenny enabled the wages of handloom weavers to rise very substantially. Then weaving itself was mechanised.  

Many of them died of starvation,

why not enter the Work House instead?  

many with families vegetated for a long time on 2 1/2 d. a day. 

But cloth got cheaper for everybody.  

On the other hand, the English cotton machinery produced an acute effect in India.

It made cloth a little cheaper- a good thing.  

The Governor General reported 1834-35: “The misery hardly finds a parallel in the history of commerce. The bones of the cottonweavers are bleaching the plains of India.”

Why the fuck would Lord Bentinck tell such a stupid lie? The answer is that he said no such thing. Karl Marx is thinking of the 'trail of tears' in the US. The path taken by the forcibly relocated Native Americans was marked by the bleached bones of those who succumbed to hunger, disease, exposure or exhaustion. 

If cloth gets cheaper, everybody benefits though some may suffer in the short run as they are forced to change their occupation. When technology improves, the quantum of muscular labour required tends to fall. This created the possibility that the industrial proletariat might, at some point in the future, shrink as a percentage of the population. This meant that the window for a Communist Revolution only existed while this percentage was still rising. Even in that case, there was the danger that an employer might share productivity gains with the workers. Without class conflict, Marx's theory of history collapses.