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This is a quick guide to building a custom 2.6 kernel, patching the kernel, and adding loadable kernel modules. You'll find detailed recipes in Linux Cookbook(O'Reilly) in Chapter 10, "Patching, Customizing, and Upgrading Kernels," and Chapter 12, "Managing the Bootloader and Multi-Booting," which tells how to customize your GRUB or LILO boot menus for different kernels.
Why would you want to build a custom kernel? To add features or remove unnecessary features. On routers and firewalls, it adds a bit of security to use kernels that have had all the unnecessary features removed, and you can reduce the size considerably to fit on devices with limited storage.