and no it doesn't mean cool, it means insane, when surfers say "that was a narly wave" they are saying it was insane and diffucult not that it was cool. narly is a word used to evoke an amazement that is slightly negative.
"That test was NARLY dude! I'll be lucky if I pass!"
When something is totally wrong, gross, disgusting, out-of-whack, but taken to the extreme. Also, can be taking to the other extreme, in the positive sense.
That girl was ugly. She wasn't just gnarly, she was guh-narly.