Ray Davies wrote this with the help of his brother (and Kinks guitarist) Dave. Ray played it for Dave on piano, and Dave tried it on guitar. Their first version was 6-minutes long.
Dave Davies got the dirty guitar sound by slashing the speaker cone on his amp with a razor blade. The vibration of the fabric produced an effect known as "fuzz," which became common as various electronic devices were invented to distort the sound. At the time, none of these devices existed, so Davies would mistreat his amp to get the desired sound, often kicking it. The amp was a cheap unit called an Elpico.
Before they released this, The Kinks put out 2 singles that flopped. If this didn't do well, there was a good chance their record label would have dropped them.
When the Kinks heard the first version they recorded of this, they hated the results. It was produced by Shel Talmy, their manager at the time, and Ray Davies thought it came out clean and sterile, when he wanted it to capture the energy of their live shows. Dave Davies girlfriend backed them up, saying it didn't make her want to "drop her knickers." The Kinks' record company had no interest in letting them re-record this, but due to a technicality in their contract, The Kinks were able to withhold the song until they could do it again. At the second session, Dave Davies slashed his amp and Talmy produced it to get the desired live sound. This is the version that was released.
This was the first hit for The Kinks. It gave them a lot of publicity and led to TV appearances, magazine covers, and 2 gigs opening for The Beatles. They didn't have an album out yet, so they rushed one out to capitalize on the demand. This first album contained only 5 originals, with the rest being R&B covers.
Ray Davies recalled in an interview with NME how his brother Dave created the distortion effect on this song. Said Ray: "We stuck knitting needles in the speakers, or in Dave's case, he slit the speakers with a razor blade. In those days we played records on a radiogram so loudly that they all sounded fuzzy. We thought, 'That's a great sound,' without realizing the speakers were buggered. Everyone else was using really clean guitar sounds, so for 'You Really Got Me' we hooked a little speaker up to a clean amp and came up with thunderous, unaffected, pure power."