Here's what wikipedia has to say about it:
"In Scotland the "fiery cross", known as the Crann Tara, was used as a declaration of war. The sight of it commanded all clan members to rally to the defence of the area. On other occasions, a small burning cross would be carried from town to town. The practice is described in the novels and poetry of Sir Walter Scott. The most recent known use there was in 1745, during the Jacobite Rising[1], over a century before the foundation of the Klan.
Though some members of the Klan were descended from immigrants from Scotland, there is no evidence to suggest that their ancestors brought this tradition with them to America.
The Reconstruction-era Klan did not burn crosses, but Thomas Dixon's 1902–1907 trilogy of novels portrayed a romanticized version of the Reconstruction Klan that did burn crosses (see The Clansman). Dixon may have based the idea on Scott's writing, or on other literary or historical sources. The 1915 movie The Birth of a Nation was based on two of Dixon's novels. "
