The skill level of a skill determines how powerful it will be when used.
All Diablo II skills have 20 skill levels, and their efficiency varies. They all suffer from "diminishing returns", making the skill point from 19 to 20 a lot less useful than the skillpoint from 1 to 2.
A player need not actually have a skill point to gain a skill level, as plenty of items increase skill levels of all skills or just individual skills. In this way, players can even use skills of other classes.