objectivists think they know what reality is, and how it works?
Certainly I cannot speak for all of them, but what I can tell you, is that objectivism has a thing called ?The Law of Identity?. Everything that exists has a specific nature. Each entity exists as something in particular and it has characteristics that are a part of what it is. "This leaf is red, solid, dry, rough, and flammable." "This book is white, and has 312 pages." "This coin is round, dense, smooth, and has a picture on it." In all three of these cases we are referring to an entity with a specific identity; the particular type of identity, or the trait discussed, is not important. Their identities include all of their features, not just those mentioned.
Identity is the concept that refers to this aspect of existence; the aspect of existing as something in particular, with specific characteristics. An entity without an identity cannot exist because it would be nothing. To exist is to exist as something, and that means to exist with a particular identity.
To have an identity means a single identity; an object cannot have two identities. A tree cannot be a telephone, and a dog cannot be a cat. Each entity exists as something specific, its identity is particular, and it cannot exist as something else. An entity can have more than one characteristic, but any characteristic it has is a part of its identity. A car can be both blue and red, but not at the same time or not in the same respect. Whatever portion is blue cannot be red at the same time, in the same way. Half the car can be red, and the other half blue. But the whole car can't be both red and blue. These two traits, blue and red, each have single, particular identities.
The concept of identity is important because it makes explicit that reality has a definite nature. Since reality has an identity, it is knowable. Since it exists in a particular way, it has no contradictions.
This is the objectivist answer to your question. 
Logic and rationality is the art of non-contradiction.
Subjectivism was introduced in respect of the subject because subjectivism is a form of irrational epistemology. Epistemology is the study of knowledge, and how we come to achieve it. A proper epistemology allows us to gain valid understanding of the world, and identify incorrect ideas. An epistemology based on reason is our means of successfully acquiring knowledge. An irrational epistemology, though, impairs the functioning of the mind. The more irrational it is, the less valid the knowledge one has is.
Since philosophy is a kind of knowledge, an irrational epistemology is the destroyer of a rational philosophy. It is makes it difficult or impossible to get other parts of the philosophy right, since it is prevents the proper functioning of the mind.
Like all misbegotten notions, most irrational epistemological theories or assumptions are not practiced consistently. The result would be an inability to deal with the world. Instead, an irrational epistemology is practiced inconsistently. It impairs the mind when it is used, but it is often ignored allowing limited real use of one's mind.
so objectivism holds that knowledge is 'generated' from 'reality'
It is the act of founding one's knowledge on reality, and in accordance with the Law of Identity. What does objectivism hold?
Objectivism holds that objects present themselves to consciousness in such a way that they must be genuinely "other," that is, non-identical to one's own consciousness. Though Objectivism grants that some particular existents are mental (e.g., minds, thoughts, desires, intentions), it holds that, if what fundamentally exists is independent of any consciousness, then the universe as a whole is neither the creation of a divine consciousness nor itself mental.
Objectivism holds the Law of Identity, which, in case you missed it above, states that everything that exists has an identity. In saying this, Objectivism is asserting more than the tautology of self-identity (i.e., "everything is identical to itself"). It is asserting that everything that exists has a specific nature, consisting of various properties or characteristics (as Rand wrote, "to be is to be something in particular").
Moreover, Objectivism holds that the properties and characteristics in question must exist each in a specific measure or degree; in this respect "identity" also means finitude. According to Objectivism, then, everything that exists has a specific finite nature. To have a specific, finite nature, is incompatible with having a self-contradictory nature. Therefore, the whole of reality is noncontradictory; though contradictions might exist in thought, there are no contradictions in the real world.
Another Objectivist doctrine deserves mention here: Objectivism rejects the mind-body dichotomy, holding that the mind and body are an integrated whole. Though this doctrine may sound like a stance in the philosophy of mind ? a doctrine concerning the relationship between consciousness (mind) and brain (body) ? it is not. Rather, it amounts chiefly to the assertions that (a) there are both mental existents and physical existents, and (b) existents of both sorts have genuine causal powers, though whether entities of either sort, or their causal powers, can be reductively explained is another matter. This doctrine represents a rejection of any forced choice between Marxian materialism and Christian spiritualism. Marxists hold that the material factors of production have metaphysical priority over consciousness. Christians hold that reality is fundamentally spiritual. Objectivism rejects both views: physical entities and mental entities both exist, and neither is more real than the other. Though this doctrine may entail the rejection of eliminativism, Objectivism does not offer any particular metaphysical or scientific explanation of the relationship between mind and body in the philosophy of mind. However, Harry Binswanger, a prominent Objectivist philosopher, argues in his lecture course, "The Metaphysics of Consciousness," in favor of substance dualism. He rejects not only eliminativism and materialism, but even the property dualism of David Chalmers and the emergentism of John Searle.
so does objectivism tell us which values should be accepted?
Objectivism, as was said earlier, is the recognition of reality as the ultimate standard of evaluation. It can be used as a metric for judging values and such; it is essentially a ?ground?, and a very stable, consistent one.
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