Skull Kids are a race of cursed beings that reappear throughout the Legend of Zelda series.
They are suggested by Navi to be what Kokiri become if they get lost in the woods and can't get back out. However, Skull Kids are not the only possible example of creatures being transformed by the woods; according to a young Kokiri that Link meets on one of his sidequests in Ocarina of Time, Hylians gradually become Stalfos if they get lost in the woods, and in Four Swords Adventures, the Deku claim that getting lost will turn someone into one of them.
Skull Kids look similar to Kokiri, which lends credence to Navi's explanation; the chief differences are that their skin is made out of wood, their eyes are glowing yellow, and some have a beak instead of a mouth, though the Skull Kid found in Twilight Princess does appear to have a mouth. Although Skull Kids seem to like to wear masks over their faces, the majority of them do not. While Skull Kids tend to be friendly towards younger Hylians, they show a fear towards adults and will attack them on sight.
Skull Kids also slightly resemble Imp Poes, with their small shape, mischeviously violent nature and small lanterns. This could possibly mean Skull Kids are pre-Imp Poes, and be their living counterparts.
The most famous member of this race is the Skull Kid that stole Majora's Mask from the Happy Mask Salesman. In Ocarina of Time, a Skull Kid befriends and gives Link a Piece of Heart after he plays "Saria's Song" for him, and later buys the Skull Mask from him (it is heavily implied that this Skull Kid is the same one as the one who features in Majora's Mask during Majora's Mask's Ending Cinematic). Another pair of Skull Kids will give Link a Piece of Heart if he can complete their Ocarina memory game. In Twilight Princess another is seen in the Sacred Grove as he guides Link and Midna to the resting place of the Master Sword, and later to the Temple of Time.
The instrument the Skull Kids play in Ocarina of Time appears to be a flute. They also use their instrument to fire blow darts. In Twilight Princess, however, the Skull Kid Link encounters is playing what seems to be a trumpet-like horn.
In the Ocarina of Time manga, it is stated that while his family was on a picnic, a young boy who would become the Skull Kid Link befriends, ventured into the Lost Woods to catch a fairy. As he ran into the forest, his mother yelled at him to not go because he would get lost. Ignoring his mother's advice, he entered the forest and indeed became lost and couldn't get out. The forest was pitch black, causing him to became very scared. He entered the darkness of the forest and breathed in the dark air easily, causing him to gradually transform into a Skull Kid, the fate that befalls Hylian children who venture into the Lost Woods.