Skinning is the art of changing images in programs, thus making it look different. It’s called skinning because, although it looks different on the outside, it is the same in what it does. Many apps are skinnable, and even operating systems. Windows has the biggest skinning community, and there are a few different ways to skin XP. The most common is Visual Styles, which is free but can’t change the position of/add new buttons. After that is WindowBlinds, a sharware app by Stardock. It can change the position of and add new buttons, but it costs $30. The least popular option is shell replacement, a risky option that can change just about everything in Windows. A guide that gets more in-depth is available here.
Skinning doesn’t apply just to Windows, though; you can skin a lot of programs. Some of the most popular are Winamp, a media player, Rainlendar, a cross-platform calendar, and Firefox, a web browser
You don’t have to make your own skins; sites with huge databases of skins are out there. Check out the blogroll at the bottom of the page for my favorite sites, and don’t forget to look at Customize.org, where I post my own skins for Rainlendar 0.22.1!