Penelope is a very traditional Greek name, and it means "weaver." It was most famously the name of Odysseus' long faithful wife in Homer's epic poem, The Odyssey. Thanks in part to actress Penelope Cruz, the name has risen in popularity in recent years, and currently ranks in the top 200 names in the U.S. It's a name that comes with a few possible nicknames, including Pen, Penny and Nel.
And Kourtney isn't the first celebrity to give her child the name Penelope. Both Tina Fey and Taylor Hansen gave their daughters the same name.
The middle name's meaning is easy to guess—Kourtney is clearly following the place name trend to the extreme, and choosing a place that few people are naming their children after at the moment (no Brooklyn or Austin for them). I'd be interesting to find out why they selected that spot out of so many others to immortalize in her name.
Given that Kourtney and Scott's choice of name for their son, Mason, quickly rose the name charts soon after and now sits in the second-place spot, I'd expect to see Penelope make a huge leap forward in the next year or two—unless people are truly sick of the Kardashians at this point. (That's always a possibility, right?)