On RStudio version 0.98.501 I had a long .Rmd file which was easily converted to html once I clicked KnitHtml button. The Knitting process, as I understand, created several fold
Sadly, Jonathan's answer in the comments worked for me. I added:
To my document, and it did the trick. He claims that this is because Pandoc on Windows is not great at handling paths.
If someone else would write a better answer, I will gladly erase this one.