Relevant SE link: "I think, therefore I am" - How does "I" establish "I" before "I" can "think"?
how does one know that one thinks?
Because something that doesn't exist can't think. Therefore you must exist (or rather I must exist, as I can't say anything about you beyond what my senses tell me is the case). If I didn't exist, then I couldn't be thinking. It is an absolute incoherent statement to say that I can think and not exist at the same time. We can't even begin to try to give a rational argument to justify such a position.
What form I exist isn't really knowable with certainty. Am I part of a dream? Maybe. Or perhaps I am a brain in a vat or in a supercomputer simulation of our universe, and my essence consists of nothing more than binary coding. Entirely possible.
What Descartes wanted to do with The Cogito was to start with a foundational philosophy rooted in the certainty he saw in self-doubt. Using it as an edifice to establish the rest of his philosophy. A lot of it was supported by the Christian God not being an "evil deceiver" tricking him into believing he was experiencing what he was experiencing through his perceptual apparatus.
Brueckner, Tony, "Skepticism and Content Externalism", The Stanford Encyclopedia of Philosophy (Winter 2016 Edition), Edward N. Zalta (ed.), URL = https://plato.stanford.edu/archives/win2016/entries/skepticism-content-externalism/.