A squalid district inhabited by the impoverished and destitute.
This American expression came into being in the Great Depression. Residence on Skid Row evokes imagery of someone who was slipping down in society - 'on the skids'.
These skids weren't just figurative though, they did exist. In the late 19th century there was an expansion of the logging industry in the USA, especially in the north-west states, and millions of trees were felled to supply the building trade. Large tree-trunks were hauled, either to sawmills or to the nearest road, river or railway, along tracks made of greased timbers. These were known to loggers as 'skid roads'. The 1880 Topographical Survey of the Adirondack Region refers to these:
"... lumbermen had cut 'skid-roads' on which logs were drawn [etc.]."
Where the first such Skid Road was is uncertain. Several correspondents have strongly asserted that the first such was in Seattle. There was, and still is, a Skid Road address in Seattle, as there are in quite a few US cities. Asked for evidence that the Seattle Skid Road was the first, my correspondents weren't able to provide it. Such vehemence is often associated with phrases that are linked in people's minds with a particular place, e.g. 'cock and bull story', 'local derby' etc. In general, these owe more to the need for tour guides to tell a good tale than they do to actual fact. Also, we can't be sure how these forest tracks came to be associated with the down-market locale of people who were living on the breadline. It could well be that, due to the unreliability of employment in the timber-felling trade, loggers hung around on the skid roads hoping for work. This, combined with the 'sliding down' imagery and the fact that skid roads leading to town sawmills or railways were built 'on the wrong side of the tracks' is surely enough to link skid roads with the bottom end of society.
The alteration from 'skid road' to 'skid row' came later and was well-established by the 1930s. The lexicographer Godfrey Irwin defined it in American tramp and underworld slang, 1931:
"Skid row, the district where workers congregate when in town or away from their job."
See other phrases that were coined in the USA.