IM = Instant Messaging. MSN/AOL and others provide that.
MSN and Windows Live Messenger are now the same thing. If they were ever actually different things.
Skype is what is called VoIP. Voice Over IP. It's like a phone, only you can also use it to make video calls. It does actually also have IM capabilities but I don't know anyone who actually uses it for that regularly. More to send a message if you are expecting a call and can't make it or something.
My OH uses Skype a lot to talk to his daughter who lives overseas. It's a free way of keeping in touch with friends/family in far flung places and is better than picking up a phone because you actually get video contact (via webcam).
In the case of Windows Live Messenger, you add the email address of the person you want to IM as a contact - they must also have WLM. If you want to PM me your WLM email address, I can add you to show you?
Skype is excellent. Particularly good for keeping in touch with family overseas since you can make video calls. If you Skype to Skype it is free too. It's definitely not the same as the chat applications (or Instant Messaging as they like to call it) though. Be prepared that if you do active any of these, they are intrusive. Regardless of what you set your status too.