In the 1850's, Seattle had a thriving timber industry. In order to move large logs, Mill Street (now named Yesler way after the founder of the first mill) was covered in oiled wooden planks. Logs slid easily down this "skid road."
At the end of a long day, the mill employees would go out looking for a party. As a result, the area around the skid road became home to many bars, liquor stores, prostitutes, and people who were down on their luck.
A visiting Chicago newsperson decided to write a story about the area, but misunderstood the term, instead referring to the area as "skid row." That is the origin of the phrase.
So now you know!
for more information about Seattle's skid road district, see: http://www.cr.nps.gov/nr/travel/seattle/s28.htm and http://seattle.citysearch.com/E/V/SEAWA/0009/85/33/cs1.html