Kraken are gigantic, octopus-like creatures that live in oceans and other deep waters like fjords.
Kraken have a rock-like shell that covers the entire upperhalf of their body. They have a large mouth and multiple eyes (the adult kraken seen on the episode has at least 30 eyes) all over their lower half. They have six tentacles.
Young Kraken mainly live on wood. It is unknown if this is also true for adult kraken.
Adult Kraken can spend decades or even centuries sleeping, during which natural deposits of sand, rock and vegetation can turn their huge shells into islands that house plants and other creatures can inhabit, like the Lindworm. In "Chapter 7: The Beast of Cauldron Island"/"Hilda and the Ghost Ship", Cauldron Island is revealed to be a Kraken. According to Wood Man, this Kraken was supposed to sleep for at least another 175 years.
Kraken form a great risk to ships due to their immense size. A mother kraken will attack any ship that gets nearby to feed the wood to her children.
Role in the series
Krakens only appear at the end of "Chapter 6: The Old Bells of Trolberg" and in the "Chapter 7: The Beast of Cauldron Island". In the "Chapter 6: The Old Bells of Trolberg", the Kraken in the harbor of Trolberg is awakened early from her slumber when the Trolberg Safety Patrol tests a bell on the fjord floor. She immediately begins to attack nearby ships to feed them to her children. The sailors, who don't know there is a Kraken, blame the attack on the Lindworm that lives on Cauldron Island. Erik Ahlberg thus assembles a fleet to attack the island and the Lindworm. Hilda and Frida investigate and thus find the real culprit. When Ahlberg attacks with his fleet, the Kraken reveals herself and wrecks multiple boats. Hilda and Frida are eventually able to direct it's attention to a nearby ship graveyard, which the Kraken can use to feed her young without having to sink any ships.
These events are also incorporated into the book "Hilda and the Ghost Ship". In the book, Hilda compares Cauldron Island being a kraken to how the mountain next to her old house turned out to be Valfreyja.