Your knee is subluxating and/or dislocating - fairly common among women. Something to do with the wider hip structure making the muscles pull the patella (kneecap) off track.
There are different treatments for it: a good brace can help, or you can get your physical therapist to teach you how to tape your knee - basically hold the patella in place with tape. As you're learning, PT can help. Also - have they looked at your shoes? If it's an issue with the way you walk (I'm not explaining it very well - sorry), there will be an unusual pattern in the tread of your shoes. If that's the case, all you need is a special insert for your shoe/s. Finally, there are surgeries: the lateral release that I think you've mentioned. This is done arthroscopically: the surgeon makes a tiny slit (about 3/4 inch long) on the upper outside of your impacted knee, cuts part of that muscle. That helps correct the muscle imbalance that is causing the problem. The LR is done either by itself or sometimes in combination with the bone movement operation (called an osteotomy). There are different varieties of the bone movement operation; one of them is called the Tibial Tubical Transfer. The osteotomy is an open operation - about a 2 inch incision down the center of your knee.
I had the LR/TTT combined operation on both knees (at different times, though). Although it's done outpatient, it is NOT minor surgery - recovery was brutal. Months of painful PT afterwards. It can help you regain a normal life afterwards, though. You may not be able to run long distances afterwards, though, and you'll always need to work on keeping your weight down and your quads strong.
If you look up "knee guru" in your favorite search engine - they have (or used to have) a forum and informational pages about PFS (patella femerol syndrome - another name for your problem). Just don't get too hung up over there - like a lot of forums, that's where people go when they are having problems. Once they recover, they go back to having a wonderful life, and don't want to spend time discussing medical stuff (which is why *I* don't go there any more!
You don't want to do the surgery prematurely - it might not be necessary. But you really don't want to let your knee keep going off track either - you need to get that under control ASAP. All of that maltracking can cause uneven wear on the inside of your knee, leading to damage later (speaking from experience).