Hi Jason, it's confusing because they are two systems aimed at two audiences and there is no obvious distinction made other than everyone just has to figure it out.

DNN uses only the ASCX version. It creates this by combining the HTML and the XML bits into the ASCX files. If you look closely at the contents of the ASCX, you'll see it matches the HTML, but adds new stuff at the very top and, where you had tokens, it inserts tags with attributes containing what you had in the XML.

The HTML version exists so that skinners have something more familiar to mess around with when first creating the skin.

You can stop editing the html version and only edit the ASCX files if you like, but be careful you don't re-parse the skin again as this would overwrite any changes you made. Make a choice now to continue your skinning with either one or the other. If you go with editing the ASCX version, remove the HTML files from the folder .

It's nearly impossible to find on the site here, but somewhere there is a skin objects guide written by Timo. It details the attributes you can use in place of the tokens in the ASCX skin.
Regards
Rob