The song tells the story of the rise and fall of a drug dealer in the context of the psychedelic scene of the 1960s on the West Coast. Specifically, writers Walter Becker and Donald Fagen have stated that the lyrics were loosely inspired by the exploits of the San Francisco-based LSD chemist Owsley Stanley,^[4] augmented with numerous other images of the Sixties:

On the hill the stuff was laced with kerosene
But yours was kitchen clean
Everyone stopped to stare at your Technicolor motor home

Every A-frame had your number on the wall

The first two lines draw on the fact that Owsley's acid was famed for its purity, and the Technicolor motor home of the third line is likely a reference to the famous psychedelic bus named Furthur, which was used by the Merry Pranksters, who were supplied their LSD by Owsley.^[5][6]

The final verse describes Owsley’s drug bust in 1967 when he was arrested after his car reportedly ran out of gas.^[7]

Clean this mess up else we’ll all end up in jail
Those test tubes and the scale
Just get it all out of here
Is there gas in the car?
Yes, there’s gas in the car

I think the people down the hall know who you are

Carlton's guitar solo starts at 2'18" into the song and ends at 3'08". It was described, by Pete Prown and HP Newquist, as "twisted single-note phrases, bends, and vibrant melody lines"; they called this, and the solo in the fade-out, "breathtaking."^[8] According to Rolling Stone, which ranked "Kid Charlemagne" at #80 in the list of the 100 greatest guitar songs, "In the late seventies, Steely Dan made records by using a revolving crew of great session musicians through take after take, which yielded endless jaw-dropping guitar solos. Larry Carlton's multi-sectioned, cosmic-jazz lead in this cut may be the best of all: It's so complex it's a song in its own right."^[9] Far Out Magazine, in 2022, listed it as #4 in a list of the six greatest Steely Dan guitar solos, saying the "lead lines of 'Kid Charlemagne' are intense, fluid, and frequently on the brink of spinning out of control".^[10] Nick Hornby, in Songbook, spoke of the solo's "extraordinary and dexterous exuberance", though he questioned the relationship between the solo and the "dry ironies of the song's lyrics".^[11] Prown and Newquist described the solo during the fade-out as a "joyous, off-the-cuff break".^[8]

“It’s my claim to fame,” Carlton told Guitar World in 1981. “I did maybe two hours worth of solos that we didn’t keep. Then I played the first half of the intro, which they loved, so they kept that. I punched in for the second half. So it was done in two parts and the solo that fades out in the end was done in one pass.”^[12]

The tap on the fretboard, at the end of the solo, was cited by Adrian Belew as an early example of what he and fellow guitarist Rob Fetters were trying to accomplish, at the time when Eddie van Halen was experimenting with the technique.^[13]

Carlton called his solo on "Kid Charlemagne" the high point of his career at the time, saying, "I can't think of anything else that I still like to listen to as strongly as that."^{[citation needed]}

Cash Box said that "the melody and arrangement are complicated, but accessible" and "every note is necessary."^[14]

• Kanye West sampled the song on "Champion", from his 2007 album Graduation. Becker and Fagen initially refused West's request to use the song. They changed their minds after receiving a personal letter from West explaining the song's importance.^[15]