The way it works is that you make a skin and upload it to LFSWorld. Then when people join the same server as you LFS automatically downloads the skin (and the skins of everyone else in the server).
But this is not available in the demo, like Taavi said.
In the demo you will have to find and manually download the skins of others then put them in your skins x folder to see them. It only really works for poplualr skins and the skins of your friends.