the skin has been rotting. through out the "death" story arc (which is about 6 issues i think?) it gets grosser and grosser. again, capullo does some great shit here in the design. really makes the joker look creepy.
But why is that awesome?
because it looks neato. and freakish. and gross. and scary. it's an artistic twist that i like.
the joker can sometimes get a little too silly in appearance, depending upon the artist. like... why is his nose always so big, for example. did the joker toxin also create an extra pointy chin? i get that he's a clown ... or... a playing card mascot, or whatever. but i like seeing varied takes on the visuals that tend toward the creepy or scary or crazy or whatever, and this is one of them.
i think ledger's look in dark knight (the slice up mouth with the grotesque rotting paint) was also neato. it was extra odd, extra gross, and extra scary -- much more so than the typical dab o'white paint (even just to cover up ceasar's mustache)
joker's severed face in the batman arc is disgusting. it's continually rotting to further degrees, even attracting flies. it's terrifying, in an 80s horror film villain sorta way, that there's a baddy chasing you with this type of disfigurement that he either doesn't himself notice or he's fine with it. then, add in the "funny" appeal, where the joker is basically tying this to his face with rubber bands, and even occasionally misaligning his real face with the severed skin (an eye through a nostril, for example).
overall, its just a visually nice and new (all be it temporary) spin of "FUCK he's crazy"

lookit this creepy mother fucker!