I think that Kay did know, in her heart. It was confirmed in the book by Mama Corleone. However, since Michael had been away, it was impossible for Kay to understand his transformation from the college boy with the questionable family to the cold, ruthless man he had become. When he returned, he professed his continuing love for her. Since she had loved him and lost him, it's understandable why she married him, despite what she really knew to be the truth about him.