Stone skin is often compared to shield, which has similar effects. They both reduce the amount of damage creature stacks receives. The main difference between these two spells are, that stone skin also works against ranged creatures while shield only reduces hand-to-hand damage. A rule of thumb whether to use shield or stone skin in hand-to-hand combat is, that if enemy's attack skill is greater than your defense skill, use stone skin. Of course, with both spells active, your troops will receive considerably less damage.
If your unit has 20 more armor than the enemy units attack then stone skin is better otherwise shield is always better.