From wikipedia:
When Forrest testified before a Congressional investigation in 1871 ("The reports of Committees, House of Representatives, second session, forty-second congress," P. 7-449) the committee concluded that Forrest's involvement with the Klan was to attempt to order it to disband. They found no evidence that he had founded the Klan, that he had led the Klan or that he had acted to advise it other than to make efforts to have it disband.
On July 5, 1875, Forrest became the first white man to speak to the Independent Order of Pole-Bearers Association, a civil rights group whose members were former slaves. Although his speech was short, he expressed the opinion that blacks had the right to vote for any candidates they wanted and that the role of blacks should be elevated. He ended the speech by kissing the cheek of one of the daughters of one of the Pole-Bearer members.[1][2]
When they reassembled a week later, the six young men were full of ideas for their new society. It would be secret, to heighten the amusement of the thing, and the titles for the various officers were to have names as preposterous-sounding as possible, partly for the fun of it and partly to avoid any military or political implications.
Thus, the head of the group was called the Grand Cyclops. His assistant was the Grand Magi; there was to be a Grand Turk to greet all candidates for admission, a Grand Scribe to act as secretary, Night Hawks for messengers and a Lictor to be the guard. The members, when the six young men found some to join, would be called Ghouls.
But what name to call the society itself? The founders were determined to come up with something unusual and mysterious. Being well-educated, they turned to Greek.
After tossing around a number of ideas, Richard R. Reed suggested the word "kuklos," from which the English words "circle and "cycle" are derived. Another member, Captain John B. Kennedy, had an ear for alliteration and added the word "clam." After tinkering with the sound for a while, group settled on the "Ku Klux Klan." The selection of the name, chance though it was, had a great deal to do with the Klan's early success.
Something about the sound aroused curiosity and gave the fledgling club an immediate air of mystery, as did the initials K.K.K., which were soon to take on such terrifying significance.