Adding skins is done in the filesystem of the server. There is not a provision to add or create skins in-game.
Selecting skins occurs in-game. There is a "skins" menu that pops up next to the inventory and recipe menus. You can also lock skins to specific players, so no one can steal your face.
The skin image format is SOMEWHAT compatible with MC. I was able to crop and use my MC skin, but it required a little bit of editing to get everything to line up correctly. There is also no secondary layer, so things like glasses and beards need to be on the base layer.
But hey, there's nothing like a personalized appearance to make you feel invested in the character! It is very nice to see your own skin rather than a generic one.