Kips are shorthand for Kernel Initialisation Process. You can think of it like either a kernel extension (providing bonus functionality to existing kernel stuff - i.e LFS), or a separate process you tell the kernel to run (i.e FTPD kip module) with the same permissions as the kernel. I believe it comes from Linux where the kernel is modular, and allows you to load these little modules (kips or kpps) on demand or on boot to provide functionality (drivers etc). Compare that to Windows' monolithic kernel where everything required is loaded into RAM at once and the only way to unload it is to restart (which unloads the kernel completely).
ReiNX is a great example of this as you can use the ReiNX toolkit to dynamically load/unload kips on demand compared to Hekate where everything is loaded on boot and that's it (no option to unload them but that's a Hekate design issue, not a Switch kernel one).