How to skin
Upon killing an animal, they will drop on the ground and when they do, you will be able to remove their hide. Simply approach the animal and click on it so long as you have a skinning knife that is the same tier or higher. You can also skin flat-tier animals with a knife that is one tier below the animal. For example, a t3 knife can skin a t4 animal that is not uncommon/rare/exceptional.
Here's an example of a dead snake in Thetford:
Hide is stackable; the maximum stack is 999.
What to do with Hide?
Example: Leather Armor.