Once you have succeeded in killing an animal, you can click on its corpse with a Skinning Knife equipped to skin it and remove its hide. Each tier of Skinning Knife will be sharp enough to skin an animal of the tier above. For instance, with a T1 Skinning Knife, a player will be able to skin a fox, which is a T2 animal, and so on.
Hide (T2+) must be refined into Leather at a Tanner before it can be used to craft items. Leather is a required resource in every recipe for armor sets, so it is a useful commodity.