To compile the kernel, you have several possibilities.
Either you want to recompile the present kernel, then you have to install the 'kernel-source' package (and maybe some other 'kernel-***' of which I can't seem to remember at the moment'). Then you would "cd /usr/src/linux" and "make xconfig" or whatever.
Or, you might want to compile a new kernel, which source you downloaded from the Internet or copied from a CD. You might come up with some linux-2.4.*.tar.gz file. go to /usr/src, move the file there, and run "tar xvfz linux-2.*****". It will create the /linux subdir, into which you can go and run the "make xconfig" script.
Ehm, I hope I don't need to mention the aeternal "RTFM" about kernel compiling ;o)
Make sure you ALWAYS keep an old, safe, working kernel entry in you lilo (or any other bootloader) so that if the new one crashes you can boot with the old one and compile again.
Good luck!