It is only mentioned once in the books. Stripfettle's Believe It Or Not Grimoire identifies it as a once-thriving country that was destroyed by the shopping-mall parasite which nearly also claimed Ankh-Morpork as a victim. The spelling of Khanli is used throughout in The Compleat Discworld Atlas.
There is a concept LP by prog rock band ELP called Karn-Evil; the conceit is of a deadly circus camping outside a town whose inhabitants flock to the midway, not knowing trhe circus is a life-sapping parasite... Welcome back my friends, to the show that never ends...