Both sentences are grammatically correct.
There are many different meanings and uses of 'know (of)', but I think the meanings of the sentences above can best be seen as the following two from the (very long list in the) OED:
"There are too many words that I don't know."
To (come to) apprehend, be or become conversant with or aware of; to learn.
That is to say, 'there are many words that I do not understand'.
"There are too many words that I don't know of."
Intr. To be aware or cognizant of (a person or thing as existing,
an event as having occurred, etc.)
That is to say, 'I am not aware of the existence of a great number of words.'
The difference between the sentences with 'words' is, I think, negligible. However, if you substitute 'words' with 'people', the difference becomes clearer:
"There are too many people that I don't know."
Which could mean that you don't know the people (at, for example, an event) personally.
"There are too many people that I don't know of."
Which could mean that you haven't even heard (a lot) about many people, and you might be oblivious to their existence.
The first use of 'know' can actually also mean 'be aware of', but it is made more explicit with 'know of'.