Just to reinforce that sentiment ("Paul does not condone such a practice"), anyone can notice in 1 Corinthians that Paul endorses or condones virtually nothing of the thinking and theology of the Corinthians, so this sentiment/perspective (Paul doesn't condone it) is consistent with Paul's approach in the book.

Most scholars believe that some members of the Corinthian church who did not believe in the resurrection also practiced some sort of baptism for the dead. Paul does not condone such a practice, but points out the lack of logic in their actions, since they believed two contradictory things:

[list]1. The dead in Christ will not raise.
2. The dead in Christ who were not baptized in time need someone to be baptized on their behalf.[/list]

Still, as Jim said, no one can know what this verse means for certain. Either way, the verse does not present any theological problems and knowing what it means is not likely to influence your life in any way. Look into it more if you are really interested, but do not stress over it too much. Baptism for the dead is not and has never been a Church practice, so the verse certainly is not teaching that, because we would have at least seen it mentioned in the writings of the early church fathers.

The context is not about the dead who didn't know Christ, so it's heading in the wrong interpretive direction to bring that into Paul's mind here. The entire chapter is about resurrection for Christians. Nothing in the chapter is about the general resurrection, which includes non-believers. That is not Paul's context or point.

We're left to completely guess what he was talking about, which is rife for coming up with bogus interpretations. The emphasis in Paul's writing is always that people are justified by grace through faith, which demands a personal response. Christian baptism is part of that response. Baptism on behalf of someone else—maybe some believer who hadn't been baptized (shrugging my shoulders)—sounds like magic to accomplish some salvific goal, which is never what Paul teaches. So this verse is a complete mystery.

If it was important for the dead who knew not Christ, would God not reveal it?

No one knows. Over 30 interpretations have been given for this verse. There are some things we can know.

[list]1. The idea of baptism for the dead is nowhere else in the NT and is completely absent from the writings of the apostolic fathers.
2. There is no record in Scripture that proxy baptisms ever took place.
3. Baptism is never taught in Scripture as being involuntary or arbitrary.
4. Because "baptism for the dead" is mentioned only once, it is wide open for misinterpretation.[/list]

Do you know what Paul talking about?

1 Cor. 15:29 [quote]Else what shall they do which are baptized for the dead, if the dead rise not at all? why are they then baptized for the dead?[/quote]