Misspelling of "kernel". Also a Commodore acronym meaning the same, Keyboard Entry Read, Network, And Link, but I guess this is a backronym.
As for Linux and other modern operating systems, the word for "heart" of the operating system is spelled "kernel". However, in Commodore 64, the 8 kilobyte bit of ROM that has interesting system routines actually is called "Kernal ROM", and it's referred as such in every C64 assembly reference.
Why the misspelling, I don't know. Apparently the acronym above was created to cover up the mistake =) It should, of course, be noted that even FOLDOC says "see kernel"; I guess this spelling is acceptable somewhere, kind of.
So, if you see someone saying "It's spelled 'kernal'", you're not necessarily dealing with a bad speller, just a C64 fanatic. =)
The annotated Kernal ROM (and BASIC ROM) disassembly can be seen here: http://www.hut.fi/Misc/cbm/docs/c64-diss.html
(Strange that Microsoft has not yet sued them for reverse-engineering that BASIC ROM source or something... =)
See Commodore 64 kernal reference.