yes you have to seal it with primer first. Kilz is a good brand to use. then paint it so knots wont bleed thru

It depends on if you want the grain to show through or completely cover it. If you want it completely covered, sand it, prime it with Kilz (twice), and then paint. It you want some of the grain to show, look into milk paint.

I like the knots to bleed through. Makes it a little rustic. Adds personality.

Depends on the look you are wanting. What you have in the photo is beautiful and I wouldn't change it. However if the wood is the same as what I am seeing it is more of a "timber" or of the rough sawn type. If so then you should treat it as such which is like a rough sawn cedar. You should to use a slow cure oil and not an oil base Kilz.
Sherwin Williams makes a nice slow cure oil (stay away from the Ben Moore line) primer for this. 35 years in the business I have always used this with out any problems and is the best I have found. Its the S.W. A-100 Slow cure oil primer and it needs to cure at least 24 hrs before recoating. Spray and backroll if possible to work into the grain (One coat usually does it even for cedar.) However climate conditions are to be considered so be sure to test it on a sample piece and ask your sales rep. Not the pimply faced kid behind the counter at the store) As the oil Kilz is a great product and I have used hundreds if not thousands of gallons of it on smooth grade interior trim work (poplar i.e.) for backpriming and surface prep it's mainly a stain blocker and not a bonding primer and is NOT an exterior rated product and can "flake" (rarely) over time. It's the water base Kilz that's made for exterior use (go figure) and is garbage, personally and professionally I wouldn't waste my time or money on the waterbase stuff.