Here's what my friend Deborah Robson of Nomad Press had to say:
Book shelves are full of craft/knitting/quilting books. How do you find that untapped niche (or niche within a niche) to pitch to an editor?
Mostly you need to make sure you're following your own interests: to sustain the effort of making a book, you'll need to be at least mildly passionate about your topic. The more passion the better. Think of what *you* would like to see a book about.
Then cruise the shelves at a well-stocked bookstore and check the online sellers (both specialist and of books) for related titles released within the last one to two years (or, if you have access to inside information, upcoming). Editors like to see enough activity similar to your book that they can be convinced that there's a market for your topic, but not anything exactly like it. There's a sweet spot involved.
Next, make sure you're pitching the correct press: you need to be able to feel that your topic and approach will fit the publisher's list (or selection of books on related topics). It's like finding a neighborhood where your book will feel at home--also, like when you're looking for a place to live, it's good to have several possibilities in mind! You might need to adjust your pitch slightly for each potential buyer, reflecting your understanding of what they're publishing and how your idea would fit--sort of like figuring out different furniture arrangements for different housing options.
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