Did Mr. Fox know where they would reach when started digging sideways and downwards?

No, Mr. Fox didn't know where they were going. He only knew that they had to get away.

‘Go downwards!’ ordered Mr Fox. ‘We’ve got to go deep! As deep as we possibly can!’ The tunnel began to grow longer and longer. It sloped steeply downward. Deeper and deeper below the surface of the ground it went.