Why is it better to take with the knight rather than the pawn in this position?
Taking with the pawn is bad for the pawn, the knight and the bishop while taking with the knight is good for all those three pieces.
First, the knight
With the pawn on b3 the knight has no future. It is tied down in a passive position on d2 having to defend the weak pawn on the open file. Furthermore it is blocked from moving forward to either e4 or c4 by the black pawn on d5 which is now a supported passed pawn. So, the pawn capture has even improved the black pawn on d5.
With the knight on b3 the knight is much better. For the moment it is protected by the pawn on c2 but it could also move to d4, a fine outpost from which it blockades the black pawn on d5 (which is no longer passed) and from which it can't easily be moved. As a bonus it also protects the pawn on c2 freeing up the bishop if it wants to move.
Alternatively, possibly after connecting the rooks by castling or moving Kd2 or Ke2, the knight could move to c5 threatening to either exchange itself for the bishop or blockade the a7 pawn on a6.
Another possible route for the knight would be Nb3-a5-b7-d6. Although black would have to play badly to allow this.
The knight has a much, much brighter future on b3.
The pawn
On b3 the pawn is much weaker than on c2 where it anchors the bishop and prevents the black d5 pawn from being passed.
The bishop
With the pawn on c2 the bishop has a role protecting the pawn. If the pawn moves to b3 then the bishop has to move to the passive square c2 to protect the pawn.
At the end of the day black is still a pawn up but that pawn is weak, black's bishop is bad and white is ahead in development.