This is one of those 'you'll know it when you see it' things, as I view it anyway. Usually, if some time is spent inspecting and cleaning an old, rusty knife, it'll become obvious at some point whether the knife has any useful life left in it. With a folding knife, if it's so rusted that the blades are fused shut, to the liners or the backspring, that's usually (for me) time to declare 'time of death' for it. Difficult to avoid breaking backsprings, when they're that bad. But if the pivots & springs are still functional (maybe with some aggressive cleaning), I won't write it off so quick. Sometimes the blades themselves will endure a lot more, for a lot longer, and can be scrubbed clean and given new life. Some of that old, time-hardened steel can amaze you in the edges it'll take. An old, ugly, dirty, rusty knife can end up being a favorite user, with some investment in time and elbow grease.
For really neglected knives, the first thing I've always done is to soak/drench/flood the whole thing with WD-40, then wrapped paper towels around it, also WD-40 saturated, and put the bundle in a zip-loc for a few days (3-4 or longer). This has worked to help loosen folders that don't want to open easily, and it'll loosen up a lot of the surface rust, which can be wiped or scrubbed off with paper towels or steel wool. After taking it out, I'll flush it again in WD-40, and keep doing so until it runs fairly clean. Then start exercising the joints by opening/closing the blades, again keeping them wet with WD-40 while doing so.
Assuming that's productive, after all that I'll give the knife a bath in hot water and dish detergent (Dawn/Ivory/etc), and keep working the joints while doing that (while immersed in the soapy water). Rinse in hot water and dry everthing out, then lube the joints.
THEN, that's when I'll start looking at sanding or other means to further clean up the blades (pitting/embedded rust, etc).
David