Telnet is a connection protocol that get's used over TCP/IP networks (the Internet is a TCP/IP network). Black Night supports Telnet via the Communications Toolbox, i.e. you need a third party connection tool such as the "TGE TCP Tool" or "TCPack". Note that you also need to install MacTCP.
TGE TCP Tool 2.5
This tool is written by Tim Endres and (I believe) is free for personal use. You can probably pick up a copy off a shareware CD, off your local bulletin board or via the Internet. It's not Swano's fave, but it works and the price is right.
However, this version doesn't support asynchronous i/o which means you may find a long delay between typing a character and seeing it on the screen. If you're using PPP, you will find a long delay between typing a character and seeing it on the screen. Black Night's buffered keyboard option may help you get around this.
Warning: Do not use any version of the TGE TCP Tool earlier than 2.5 with Black Night. Any earlier version will eventually crash, kaboooom ...
TCPack Demo 3.0
This tool is excellent, but it's a commercial product which means you have to buy it. However, you can obtain a demo version, and you should contact ASC (products@ascus.com) for more information. This tool does support asynchronous i/o and results are excellent.
Mark/Space Telnet Tool
Not released when I wrote this, but keep an eye out because it promises to be a goodie.