PokéBase - Pokémon Q&A
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I know it forces one player to use less Pokemon than the other, but Im still a little confused about it.
-How does it determine which player uses less Pokemon? Does it calculate how many times you've won in battles, have battled, etc. or does it just go "Nope you have to use less Pokemon" to a random player?
-What does it mean when it says something like "your skill level difference from 'opponent' is now (number)"?
-What is handicap's purpose?
-Why is it called handicap? It doesnt exactly seem to be the kind of thing that would help people with disabilities.
-What are some reasons handicap would be used?
-Any other main differences from regular battles?
Please try to answer all questions!

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good question.
:D thanks
Handicap is handicap .-.

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handicap (n.)

  1. a race or other contest in which certain disadvantages or advantages of weight, distance, time, etc., are placed upon competitors to equalize their chances of winning.

dicionary.com; there's more than one definition of the word handicap. That is its original meaning, rather than a derogatory word meaning a person with mental or physical disabilities.

In regards to why it's used:
>PSS battles let you set up a handicap before battling. If you set up a handicap, you can change the number of Pokémon participating in that battle. This is a way to level the field before battles between players of different skill levels.

This means the handicap is based on your ranking and (presumably but not confirmed) the Pokemon used.
Source (official Pokemon website)

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Finally an answer! Still a bit unsure about how skill level works, but i now understand why its used and a bit of how it works. Thanks!