Secret Societies were a common thing in 19th century America, and the KKK was hardly something new in that regard, having a healthy tradition to be drawing on. Secret handshakes, and grandiose titles were hallmarks or earlier movements too, such as the Know-Nothings, who had styled their leadership things like "Grand Chiefs" and "Grand Sachems", and of course the Freemasons and their various titles as well.

The Klan was little different in its adopting of titles with the Grand Wizard on top, followed by the Grand Dragon, the Grand Titan, Grand Cyclops, and so on, just choosing different terms that set them apart. The exact genesis though, is a bit harder to pin. There is little documentation to nail it down preciselyl but plenty of folks have attempted to make guess work of it. As I wrote about in this much older answer for instance, it is suggested by some that Albert Pike, a former Sovereign Grand Commander in the Masons, was influential in the development of these trappings within the Klan, but it is much disputed, as it isn't entirely clear if he was even a member.

More grounded research suggests a possible connection with another secret order known as the Sons of Malta, which had sprung up in 1850s New Orleans and enjoyed a brief, but strong, existence nationwide, dying out with the Civil War. It is quite likely that there were many former members in the ranks of the newly minted KKK after the war who brought along the ritualization of the Maltese, which had reached toward similarly "ghoulish" titles, not to mention costumery (more on this here), and a love of alliteration. The scant record that do exist also point so a similarity of the prankish initiation rituals as well!

And while Pike's influence might be debatable, the broader influence of Masonry can't be ignored either. Even though the Sons of Malta seem a good candidate for the most direct influence, at least some early members were almost certainly familiar with Masonry and small clues can be seen easily enough, such as the use of an * in Klan documents to elide over descriptions of secret rituals that the members were expected to simply know, and some Klan oaths were apparently copied wholesale from Masonic ones.

However, many aspects were, while clearly influenced, new ones. Parsons, for instance, notes how the various codewords that the Klan chose, such as "Dismal" or "Dreadful" aren't similar to those of Masonic lodges, but rather suggestion being extracted from "sensationalist fiction", chosen for their "ominous and literary quality", and likely suggestive as well of the direction the Klan went in choosing the specific terms for their officers. We also can look to the self-image that the Klan had of itself, protecting 'good, honest white society' from the Freemen and Carpetbaggers, and the idea that they propagated of their victims believing them not to be men, but ghosts of dead Confederates coming for revenge, or literally forces 'coming from hell' to cause terror.

Even after the KKK's nominal disbandment, such groups continued to be the hotbed of white supremacist ideology, the same men continuing on their fraternal traditions, simply less obviously than the Klan had in its heyday, in "Democratic clubs, Masonic lodges, and probably (as has been shown in the case of New Orleans) carnival societies".

So the sum of it is that the titles weren't all that unusual. Pulaski, TN where the Klan was founded in 1866, had no less than eight Masonic lodges, not to mention former members of the Sons of Malta, and likely a number more men with connections to similar, less prominent secret organizations with their own trappings of pseudo-exoticism and ritual. Odd sounding titles were part and parcel of this pagentry, and it is, if anything, fairly mundane and expected that a secret group like the Klan would follow that pattern, and while certainly strange, they would speak to a language that many of the period would understand.

Sources

Allerfeldt, K. (2016). "Murderous Mumbo-Jumbo: The Significance of Fraternity to Three Criminal Organizations in Late Nineteenth-Century America". Journal of American Studies, 50(4), 1067-1088.

Harcourt, Edward John. 2005. "Who were the Pale Faces? New Perspectives on the Tennessee Ku Klux." Civil War History 51 (1) (03): 23-66.

Parsons, Elaine Frantz. 2016. Ku-Klux: The Birth of the Klan During Reconstruction. Chapel Hill: University of North Carolina Press.

Proctor, Bradley D. 2018. ""The K. K. Alphabet" Secret Communication and Coordination of the Reconstruction-Era Ku Klux Klan in the Carolinas." The Journal of the Civil War Era 8 (3) (09): 455-487,560.