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God is all knowing. It says in the bible that God forgets our sins and transgressions. Is this a correct translation? It seems very contradictory.

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The Bible uses many images to express the message it want to convey.

In exemple the Bible uses body part to explain the action of God.

They set out from Elim, and all the congregation of the people of Israel came to the wilderness of Sin, which is between Elim and Sinai, on the fifteenth day of the second month after they had departed from the land of Egypt. 2 And the whole congregation of the people of Israel grumbled against Moses and Aaron in the wilderness, 3 and the people of Israel said to them, “Would that we had died by the hand of the LORD in the land of Egypt, when we sat by the meat pots and ate bread to the full, for you have brought us out into this wilderness to kill this whole assembly with hunger."

The Holy Bible: English Standard Version. 2001 (Ex 16:1–3). Wheaton: Standard Bible Society.

6 this Ezra went up from Babylonia. He was a scribe skilled in the Law of Moses that the LORD, the God of Israel, had given, and the king granted him all that he asked, for the hand of the LORD his God was on him.

The Holy Bible: English Standard Version. 2001 (Ezr 7:6). Wheaton: Standard Bible Society.

But the Bible maintains that God is a spirit and He does not have body parts like hand in the example above. The is a literary exercise called Anthropomorphism (wiki)

In your question it is the same scheme that is used. The biblical author used and image that we could easily understand "forget" to express that God will not impute the consequences of our sins. Since He decide not to judge us according to our sins it is the same has saying that he does forget them.

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