Peggy found out when Hank finally told her one episode, and was gonna snitch on Nancy to Dale but then decided that Dale was a good father and she didnt want to ruin what their family had.
Dale knows that Joseph couldnt possibly be his son, he calculated the time and realized that he was away at some kind of alien convention at the time Joseph was conceived, he originally thought it was Aliens who impregnated Nancy and was going to drive Joseph to some desert place to be re-abducted by his real father, until Hank and Bobby chased them down and made Dale realize that regardless of who Josephs true parents are he'll always love him.
Dale is a really trusting dude who believed in Nancy so much, that his first thought would be aliens before her cheating on him with the buff Native American man who was always at his house. He loved Nancy so much that when he met the perfect woman for him, he didnt fukk her and instead went home to his wife.
King Of The Hill was kind of sad/deep sometimes