When you collect skulls they get added to the list in the campaign options. They are designed to make the game harder, for instance the Iron skull makes you respawn at the beginning of the level when you die, instead of the last checkpoint reached. The fog skull covers the level in a thick fog so its difficult to see, theres also a skull called grunt party, it doesn't really make the game any more difficult but when you shoot a grunt in the head with the skull turned on, confetti erupts from the head of the grunt and you hear children cheering.