Board Thread:Sonic News and Updates/@comment-24108393-20131118164338/@comment-24252369-20131209005514

Mystic Monkey wrote: It is canon but regarded as spin-off from the major Sonic games.

In Sonic Generations Sonic compares the strange colourless time periods as no different than rescuing genies in magic books.

But the Storybook series are based on actual legends, such as One Thousand and One Nights and the Legend of King Arthur himself. You can't compare it to Generations, because Generations was canon and it was clearly explained how and why. You're right about Sonic and the Black Knight being considered a spin-off, because it is a spin-off  based on real world legend which places well-established Sonic characters (such as Shadow and Knuckles) in completely different roles and gives them new background stories. It was like a fun role-playing game which used characters from Sonic.

Based on all this, I'm actually going to make a justified conclusion that whether or not the game is officially canon, it cannot actually be canon because that would conflict with the rest of the canon storyline...unless the events of the game were all a part of Sonic's imagination (e.g. he was dreaming it). - that would make it canon.