A shell is a program [or group of programs] that allows interface by the user with the Operating System Kernel.
Normally [in Windows] that is a process called 'explorer.exe' which also includes the file manager [also called 'explorer.exe']. In Win 3x the equivalent was handled by 2 processes with different names...'progman.exe' and 'fileman.exe'.
What the shell can then be made to do [through add-ons such as Windowblinds] is change its appearance and even with functionality enhancements.
Or, one can simply ignore the default shell and install and run an alternative [eg Litestep] which gives you the potential to do 'stranger' things that Mister Gates may not have anticipated.
Either way, both 'need' and definitely benefit from the adoption of Windowblinds which, even with no Explorer shell still skins the actual windows themselves.
In comparison, a skin is simply the graphics and/or configuration applied to a program or shell to change its appearance...but in the case of 'skinning' a shell the result is called a 'theme'...