Before diving deep into kernel compilation from sources, we will detail a simple procedure when you just want/need to update your kernel using binary RPM packages compiled for your version of Mandrakelinux. The example will assume the new kernel is kernel-2.6.3-5mdk and the old (current) one is kernel-2.6.3-1mdk.
Install the New Kernel. Issue the command: urpmi kernel-2.6.3-5mdk in a terminal window.
Verify it Works. A new entry will be available in the LILO menu (named something like 263-5). Reboot your computer and select that entry to boot with the new kernel. Perform all the tests you consider necessary to make sure the new kernel works correctly.
Uninstall the Old Kernel. Once you are sure the new kernel works in your computer, you can remove the files related to the old kernel. Issue urpme kernel-2.6.3-1mdk in a terminal window and edit /etc/lilo.conf removing the 263-5 section and issue lilo -v to make the new kernel the default one.