The system console is the device which receives all kernel messages
and warnings and which allows logins in single user mode. If you
answer Y here, a virtual terminal (the device used to interact with
a physical terminal) can be used as system console. This is the most
common mode of operations, so you should say Y here unless you want
the kernel messages be output only to a serial port (in which case
you should say Y to "Console on serial port", below).

If you do say Y here, by default the currently visible virtual
terminal (/dev/tty0) will be used as system console. You can change
that with a kernel command line option such as "console=tty3" which
would use the third virtual terminal as system console. (Try "man
bootparam" or see the documentation of your boot loader (lilo or
loadlin) about how to pass options to the kernel at boot time.)

If unsure, say Y.