It uses the swatch color to judge how light/dark the skin is and decide which color(s) are dominant for fantasy skins, so an accurate swatch is important. It makes fairly accurate textures for natural skin colors and makes its best guess at tan and burn colors for fantasy skins. It sets up the light/dark slider with standard values. Pick which skintone panel you want the CC skins to appear in and this tool will convert them. Then remove the old package from your Mods folder and replace it with the converted one. When running this tool, do NOT save the converted package over the original that may corrupt the package and you could end up with an unusable file! Give it a new name or save it in a different location. If you see a message saying there are no tones found in the package, you're probably trying to convert one of those.
It is also NOT for texture-only default replacements. This tool is ONLY for skin colors that are applied in the skintone panel in CAS, NOT 'skintones' that are applied in skin details.
This tool will update them and optionally will add tanned and burned textures to older skintones. With the December 2020 patch, CC skintones stopped appearing in the CAS skintone picker.