Xcode 4 target build setting "Skip install". What is it?

I believe this only matters when you're developing for the App Store. If you archive your app target and this includes building other targets (command line tools, static libraries, ...), all the targets' products are copied into the archive, unless SKIP_INSTALL is set to YES.

You can verify this: Archive your application, find the archive in the Organizer, Option-Click --> "Show in Finder", go into the archive (Option-Click --> "Show Package Contents"), and in /Products you will find multiple files/folders. However, App Store builds only allow one product within the Products directory. Xcode warns you about this if you "Validate" your archived app in the Organizer:

Normally (SKIP_INSTALL=NO), during the install phase, the built target would be installed to $(DSTROOT)$(INSTALL_PATH). Setting SKIP_INSTALL=YES causes the target to be built but not installed.

This is useful for static archives (libsomething.a) that will be later linked into other targets or bundles that will be installed by another target's copy-files build phase.