WARNING! : CONFIGURING TELNET IS A BAD IDEA AS ITS TRANSFER’S DATA IN PLAIN TEXT FORMAT (UNENCRYPTED FORMAT). TRY TO AVOID TELNET AS MUCH AS POSSIBLE AND USE SSH INSTADE. THIS ARTICLE HAS BEEN EXPLAINED FOR LEARNING PURPOSE OR ON YOUR OWN R & D LAB YOU CAN USE WHERE SECURITY IS NOT A MATTER OF CONCERN. I EXPLAINED THIS IS JUST FOR KNOWLEDGE & INFORMATION PURPOSE & NOT TO USE IN PRODUCTION SERVER.

Step : 1 Install Required Packages

Packages Required :
telnet-server.xxx.xxx.xx.rpm
xinetd.xxx.xxx.xx.rpm

# yum -y install telnet-server

xined package will install automatically as its the Dependency of Telnet Server

Step : 2 Configure Telnet Server in /etc/xinetd.d/telnet

To configure telnet edit the file i.e. /etc/xinetd.d/telnet and find for word disable and change from disable = yes to disable = no. Refer the sample output below.

# nano /etc/xinetd.d/telnet

# default: on
# description: The telnet server serves telnet sessions; it uses \
#	unencrypted username/password pairs for authentication.
service telnet
{
        flags           = REUSE
        socket_type     = stream
        wait            = no
        user            = root
        server          = /usr/sbin/in.telnetd
        log_on_failure  += USERID
        disable         = no 
}

Now we are done with Configuration Part.

start/restart the xinetd service using below command.

# service xinetd start

Start the xinetd service at startup.

# chkconfig --level 35 xinetd on

Now just create a User using command useradd and login in telnet.

# useradd elinuxbook

# passwd elinuxbook

To login telnet use the below command

# telnet IP_Address_of_the_Telnet_Server

Above command will ask for username and password, Here you can enter username as elinuxbook and it's password. OR you can use any other system username and password you have.

Source : http://www.elinuxbook.com/how-to-configure-telnet-server-and-telnet-client-in-linux/