JKDC, i'm not an MD or therapist but here are my thoughts. If you are talking about body weight squats (no additional weight), then you should be able to squat. Indeed, you will need to be able to squat in order to be able to live independently. This is how we get up off the couch or floor. If you are talking about weighted squats, then, as MTG advised, you should look for clearance from your doc or physiotherapist. That said, as long as it does not cause pain, i don't see a problem with starting out with extremely light weights and working your way up from there. Slowly.
As far as form and depth of squat is concerned, proper form is absolutely essential, as is going as deep as you can with proper form. As mentioned, though, don't start with any weights until you get clearance from your doc, and even then start with extremely light weights.
Lastly, stay clear of the "Hindu squats". These may place additional (and unwanted) shearing forces on your knees due to the lack of stability in the bottom position. Keep your feet flat, your weight back on your heels or mid-foot (never on your toes or the balls of you feet), and your chest up and inflated.
Hope this helps.