There are several posts on the SecondLife forums regarding this.  Although there are several ways to create skins.  Your best bet would be to search those forums and find tutorials on digital painting - as creating skins is very similar.

Here are a few links:

http://olilas-secondlife.com/2007/12/tutorials/skin-tutorial-part-1-skintexture/

http://www.3dtotal.com/team/Tutorials_3/makingof_hecate/hecate_01.asp

http://www.secondskinlabs.com/Downloads/downloads4.html

http://forums.secondlife.com/showthread.php?t=246059

Basically there are two ways to make a skin for SecondLife or any 3D avatar - you either paint it by hand or you use photographs and manipulate the heck out of them and use photoshop to blend together.  You might want to look up tutorials on using the hue/sat controls or channel mixer.  I personally like using adjustment layers to do the skin tones.  Hope these help.