Two borders
Kapa is a border or edge and lua is two. The plain reading is 'two borders'; the reading given locally is 'arms embracing the sea', describing the two headlands that close around the bay.
Both describe the same shape. Hawaiian place naming often runs a literal description and a poetic one in parallel, and neither is the 'real' meaning at the other's expense.
The bay
Kapalua Bay is among the most sheltered swimming beaches on Maui, protected by its two points. The area above it was pineapple land into the 1990s and is now largely resort and residential.