It's the latter, more or less: You sort the Skittles after colour and pour vodka on them in the ratio of about 1 part Skittles, 2 parts vodka. Let it draw for about 24 hours, strain it, and voilà, colourful vodka that tastes like Skittles. :)
I used two bags of Skittles, so each colour needed about 1-1½ dl vodka. So I'm obviously not drinking it all tonight, haha.