What the name means
Three readings circulate. Hana plus lei gives either 'crescent bay' — reading hana as bay, and the lei as the curve of the shore — or 'lei making', reading hana in its far more common sense of work and making. A third reading treats it as the lei valley, describing the land behind the bay rather than the water.
The language leans toward 'lei making', because hana almost always means work. The landscape leans toward 'crescent bay', because the bay is unmistakably a crescent. Both are defensible and neither is settled.
The bay and the valley
Hanalei Bay is a two-mile half-circle of sand closed at both ends by cliffs, with the Nāmolokama ridge behind it carrying dozens of waterfalls after rain. The valley inland holds taro fields worked continuously for centuries, now largely within the Hānalei National Wildlife Refuge, which protects four endangered Hawaiian waterbirds.
The one-lane Hanalei Bridge, built in 1912, still limits what can be driven into the valley — which is much of why it looks as it does.
And the dragon
The 1963 song 'Puff, the Magic Dragon' places its dragon by the sea 'in a land called Honah Lee'. Peter Yarrow has said the name was not drawn from Kauaʻi, but the town has been living with the association ever since.