The skin folder is where you place pictures that you want the client to use instead of the standard ones found in the minecraft.jar; if you place a skin in there it won't show up on your character. The skin folder is for things like terrain.png and clouds.png.

It's a folder for storing the cached copies of downloaded skins from the net.

If you join a server that has support for textures, and accept the download, the very first time it will download the texture and store it in this folder.

I'm not sure that we will ever have support for client-side skinning, because it means that anyone who visits your server doesn't see it as it's meant to be seen. This is why we've added support for the server based textures.