Skins are the visual appearance of your character. This is what your tee will look like to you and other players (as long as it's not a custom made skin or else the default skin will be shown to them). There are many skins included with the game itself, but you can also search online for custom made skins. You can apply custom colors to any skin via the settings menu.
Important: People can only see your custom skin if they also downloaded it. That's why it's easier to use a client that comes with skins.