Websites I searched pretty much all said the same thing as what I quote below.
http://krath.dk/writing/mlk_kkk/kukluxklan/ :
"The name Ku Klux Klan is a little play on words. The words Ku Klux are the oldest part of the name according to one of the most well known name-theories. Ku Klux is a little change of the Greek word kuklos which means circle. "Knights of Kuklos" was the original name.
Then we have the word Klan. Klan is from the Scottish language and is in a way equal to family."