It goes into skins_y as a .dds file. You don't want to be using a skin from that folder unless you are *sure* that the owner of the skin *will allow* you to use their skin on your car.
Well now I'm confused - my skins_x folder is full of .dds files, and lo-res .jpg files. The Y folder is full of 3000 large .dds files and nothing else.
EDIT: In conclusion, apollo, check your skins_x and _y folders, and whichever folder the skin you're looking for is in, you have found the right folder. Kapeesh?