These days, the world has largely accepted that tales of the kraken, while exaggerated, were probably based on very real (and very frightening) ancient encounters with giant squids. And sure, while these animals definitely aren't the size of islands and probably don't eat humans, it's easy to see why encountering a tentacled creature over 40 feet long, on a dark night, could certainly cause your imagination to do some embellishment.
Much like the kraken of legend, giant squids are still one of the most mysterious animals on Earth. It took all the way until 2013 for a live giant squid to even be captured on film, according to NPR — note, the headline was "The Kraken is Real" — and as Business Insider reports, these creatures are so elusive that almost everything scientists know about them today comes from the occasional corpse that washes up. Regardless, the discovery of giant squids, about 150 years ago, has made it clear that Norse seamen weren't just making stuff up. Even the oft-reported way that the kraken's arrival would be foreshadowed by a "darkening of the waters" (allegedly from its excrement) can, as Wired points out, be explained by a giant squid's inking mechanism.
So yes, the kraken is real, and presumably, that means some unfortunate fishermen in olden times were genuinely unlucky enough to find a real giant squid tangling up their boat in its many, many arms. Good luck sleeping at night.
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