They knew there was no collusion because they themselves were colluding with the Russians. Steele was simultaneously on contract with Fusion and the Russians. Fusion was simultaneously on contract with DNC and the Russians. Podesta was on contract to the Russians while serving the Clintons and Obamas. And the Clintons themselves took millions from the Russians (and Chinese, and Saudis...)
They knew there was no collusion, but they assumed that a man with a complex empire like Trump’s must have cut corners somewhere, and if they dug long enough deep enough they were bound to find something.
And in the end they found nothing. They went after his personal lawyer, who would gladly have sold Trump out if he could, and he is going to prison because he had nothing of value to offer. Manafort is going to prison because he had nothing of value to trade for his freedom. They went after several others, with the same result. It turns out that Trump, despite all appearances and despite his flaws, is much more a straight shooter than anyone imagined, even perhaps straighter even than his supporters imagined.
They were trying to develop evidence that would make the dossier believable, at least to the extent they could justify the FISA warrant.