there is a TON of kernel documentation out there. The kernel howto, individual modules... google is your best friend.
There's actually some decent documentation in the kernel config process itself. If you make xconfig in the source directory, you'll get a really nifty windowed interface that explains each option in a paragraph or so.
I'd suggest doing htis with 2.6 kernels - I've heard their x interface was revamped.
Modules are drivers. So, compile only what you need. No point in having ATI display drivers compiled if you have a nVidia card. This is how stock kernels work - they have everything and its dog compiled, and then load the essential modules. A good system, but you can speed things up considerably by compiling some things you use every day directly into the kernel, and only adding support for what you need.
Things to compile directly into the kernel:
filesystems on your hardware - ext2, ext3, FAT32, ntfs, etc.
network drivers for your hardware
anything else that's basically "always on"
things to compile as modules:
soundcore support, so you can compile the latest ALSA on your own.
USB devices
video drivers (or leave out to build nVidia's on your own)
Anything else that's used occasionally, like say DOS filesystem if you have a couple old disks kicking around.
(Note that most of that is interchangeable. Some people say not to build anything directly into kernel, others favor monolithic kernels with no modules at all. Monolithic kernels are more secure, and some say faster. Anyone done a benchmark?)
Things to leave out entirely:
Anything that doesn't have to do with your hardware.
As for KDE's kernel config option, it shoudl be in the control centre, the last category (administration), under "kernel" somethingsomething. But why bother? make xconfig is spiffier.
--Rounan