A skin is how you look to other players during multiplayer or yourself if you toggle third-person view. You can also see you your skin in first person but only your hand. Skins are not in PE yet, but will be added in 0.9.0. So far you can only change your skin by going to websites and downloading them, or buying them off the XBLA store.
It is possible to change skins by replacing the "char.png" in the MinecraftPE files. Completely un-jailbroken by the way.