The vanilla sources supply the source code for the Linux kernel in an unadulterated form. Linux was ultimately created by Linus Torvalds, and the vanilla kernel is the result of what has been accepted by him into the kernel. There are no additional patches applied.
Often, you'll point /usr/src/linux to the source code of the kernel you are currently using.
To configure the kernel, you can do so with make menuconfig for a curses-based configuration menu, oldconfig for text only prompts. There is also an availability of building similar configuration menus for X windowing toolkits.