Most writers know way more different words than they use, though there are the occasional outliers who use way more words than they know.
That's because writers like readers, and many readers do complain when a writer uses a word they don't already know, as if any of us already knows all the words we will ever know. Has this changed with online dictionaries easily linked to the actual text being read? A Kindle lets you look up a word instantly. I would be interested to hear if anyone has done a study of whether people are now more willing to attack a "difficult" text, knowing they won't actually have to get up and go open a dictionary when they hit an unfamiliar word.
Allusion assistance can't be far behind.
This is all by way of my getting to a cool word I learned today (via a story about rain on The Dish): petrichor, the earthy smell of rain when it first falls on dry soil. The name was made up in 1964 by two Australian researchers, and comes from the Greek words for stone (as in "you are Petrus, the rock on which I will build my church") and ichor, the word for the fluid in the circulatory systems of the Greek gods, which got used by H. P. Lovecraft and people imitating him for the circulatory fluids of aliens and other creepy creatures.
It's not a very mellifluous word for such a sensuous, specific concept. If I do use it, no doubt tying it to a specific memory a character has, I will probably define it, just because this really is one of those "there's a word for that?" words.