How to start changing linux source code to make custom OS?

I have heard that we can customize Linux (say Ubuntu) as we wish by changing its source code and can make whole new OS. I have downloaded source code of linux kernel from www.kernel.org website. But by seeing it, I am not able to understand anything, there are so many directories, files within files (as I think there would be one single large programme). I want to do this as a college project and I also want to contribute to Linux by making necessary changes in it. But after asking this question on some of the site, they said that the Linux source code is very huge. You may try minix. Now I am very much confused. Please give me suggestions with detail about how I should start this journey (of changing source code to customize Linux) with necessary steps, along with some beginner level books.