As eldritch points out, the Ku Klux Klan was organised in the winter of 1865 by former Confederate officers. The American Civil War had just ended, and the South had lost. But these officers were dedicated to their "cause," and decided that if they couldn't legally treat the blacks of the South in whichever way they pleased, they'd drive them out or lynch them.

And these smart fellas knew that nothing scares like the undead.

So they dressed up like ghosts, white sheets and all.

And you'd be surprised how many of the uneducated and superstitious blacks of the South at the time actually believed that these were the restless spirits of dead Confederates, come back to seek revenge. The burning crosses also added to the effect, because it looks scary as ever-loving hell when it's on your lawn in the middle of the night, even before it had its current association.

And I'd find this history really funny if the KKK wasn't so sickening and frightening. I guess it just goes to show: A terrorist organisation can be a lot more intimidating than its iconography might indicate at first glance.