(The bit.ly link at the top of the image will redirect you to the 2022 posting of thee page. To return to the original forum post from 2017, use bit.ly/msg4323old)
So, this picture may seem pretty overwhelming at first, and that's because it is.
The skin template isn't anywheres close to being this large though. Focus on the black box in the upper left, you'll see the actual size of the skin template. It's so tiny!
So, that minuscule corner way up there is where the skin is actually drawn upon. Having a file any larger than that isn't allowed by the game's standards (unless you use a resource pack (formerly known as a texture pack) but we won't get into that).
Now, you might be wondering, how does one start making a skin? Well, I have a simple example skin that a newbie could use for making a skin if need be. It doesn't use any of the second layer (labeled as hat, jacket, sleeves and pants).
This is a little skin I originally made back in the days of 1.5.2, before I had premium and cheated the demo to use resource packs. I call him "Yevet" because you replace the Y with S, put S at the end and reverse the order to get Steve. It's just a little joke I had with my friends whenever I played the demo on school computers.
(Actual size for reference.)
As you might be able to tell after close inspection, the left limbs are a mirror of the right limbs. I can actually display how to do this, with a simple gif.
Now that you know how to do the most simple things with a skin, including converting a pre-1.8 skin to a post 1.8 skin, go out and start making your own skins!