You put in an image (jpg) of your skin. So let's say you have made a skirt - put it on a sim then take a screenshot of it (i.e., printscreen), then save it to a file . Please note that the size of the image has to be 300 x 224. Once you have done this a few times you get the hang of it - and it starts to look better!
Not a problem. Loooking at the very top of your keyboard there are the F (function) keys like F1, F2 etc look right along till you get to F12, next to that is a button that says Print Screen (or very similar). This is what you use. Now look at bodyshop and the wonderful skin you created, once you have the image exactly right hit that button. Then go to your favourite paint program and hit paste. Voila there it is.