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Skill balance means that no skill (or combination of skills) is overpowered in the game in a way that makes that skill or set of skills unstoppable. Every skill will offer the player advantages, but will also suffer from disadvantages that prevent it from defeating other players by itself. Instead, the player will always have to think of ways to make the skill (or set of skills) work. In contrast, others faced with this combination of skills, can always find a way to counter it if they spend enough time studying the combo.
In some cases, if ArenaNet notes that few people are using a skill, they sometimes re-design it in such a way as to, ideally, make it more useful to encourage people to utilize it. This can sometimes be controversial, since it can "break" the connection of the skill with its name, and/or effectively neutralize the "one lone use" anyone actually has found for it and actually make it even less useful. An example of the latter was the alteration to the skill Defiant Was Xinrae which used to neutralize an attack form for all nearby foes, making it useful for, if nothing else, doing Secret Lair of the Snowmen. It would briefly neutralize the Snowmen's snowball attacks, leaving them without an attack. After the alteration, it no longer did this, and a common perception was that it went from limited use to no use at all. In addition, controversy can also come because such alteration can cause a long-working and effective build (but presumably one not widely known) to stop working, requiring a player's character to need redesigning, sometimes substantially.
Changes to skill balance are done by ArenaNet on a regular basis through game updates. Major updates are done after the end of a tournament season but updates may occur at any time. Skills that are deemed too powerful are toned down, sometimes called nerfing, while skills that are deemed not powerful enough are given a boost, sometimes called buffing.
It is believed that ArenaNet observes high-level GvG and HA games to determine whether or not a skill or build is too powerful. They may also collect data from their servers about which skills players equip or use most and least frequently.