Skins are a feature limited to premium members, or in other words, people who have bought the game.

Skins are basically your appearance to other players. You yourself personally will not see your skin during a game.

Making a Skin

• Go to http://minecraft.net. Click on "Preferences" and click "download reference skin".
• Second, you can go to your favorite painting program/tool. You don't have to be picky, you can use the basic paint your computer has. Other examples are Photoshop, GIMP or Paint.net
• Third, you will want to know, that your character is shown like a series of surfaces, like if you took a paper cube, and unfolded it. Each surface can be the face, a leg, or an arm. Try experimenting with them to see where they are. There are some great examples and guides on the Official Minecraft forums.
• Forth, you will want to add some color to your bland everyday character. Try using the pencil tool to give your character a hat, or a mask. (By the way, your picture isn't very large, so you want to zoom in using a magnifying tool.)
• Fifth, when you are happy with your character, save it as a PNG picture.