The knob circled in red is designed to press against the seat post when the post is all the way in. It keeps the rear triangle from moving when the bike is folded. Screw it in further and the seat post should slip past and will touch the ground when it's all the way in. If you can't screw it in any further, the most likely culprit is the rear tire touching the frame and preventing the rear from being folded as far as it should be. The tire looks over sized to my eyes.