You will most commonly come across this wonderfully expressive word for a commotion or fuss in Britain and the British Commonwealth countries (though the White House spokesman Ari Fleischer used it in January this year). It is rather informal, though it often appears in newspapers.
One of the odder things about it is that it changed its first letter in quite recent times. Up to the 1960s, it was written in all sorts of ways — curfuffle, carfuffle, cafuffle, cafoufle, even gefuffle (a clear indication that its main means of transmission was in speech, being too rarely written down to have established a standard spelling). But in that decade it suddenly became much more popular and settled on the current kerfuffle. Lexicographers suspect the change came in response to the way that a number of imitative words were spelled, like kerplop and kerplunk.
In those cases, the initial ker– adds emphasis, as it does in other words, perhaps onomatopoeic but perhaps also borrowing the first syllable of crash. But we know kerfuffle was originally Scots and it’s thought that its first part came from Scots Gaelic car, to twist or bend. The second bit is more of a puzzle: there is a Scots verb fuffle (now known only in local dialect), to throw into disorder, dishevel, or ruffle. No obvious origin for it is known and experts suspect it was an imitative word. It is probably linked with Scots fuff, to emit puffs of smoke or steam, definitely imitative, which in the late eighteenth century also had a sense of going off in a huff or flying into a temper.
Some specialists think kerfuffle is also related to the Irish cior thual, confusion or disorder. It seems to be a minority opinion, though.