Skeletron is a boss who must be defeated in order to gain access to the Dungeon. Entering otherwise will cause you to encounter the Dungeon Guardian, which one-shots players, though some like to take it on later in the game for a challenge. You can put off fighting Skeletron until Hard Mode, but would missing the benefits that exploring the Dungeon early will provide. Doing this after Brain of Cthulhu or Eater of Worlds is a good idea. For most, it's the next step. Let's learn a bit about this boss and how to defeat him, then look at his drops.
How to Summon Skeletron
You can fight him by going to the Dungeon and speaking to the old man at night. The dungeon is always located either to the extreme east or west in your world. Ask him about the 'Curse' and Skeletron is summoned. If you fail to defeat him, he'll despawn and the old man will be gone until the next morning. The following night, you can try again. Later summons are achieved by getting the Clothier Voodoo Doll drop from within the Dungeon and using it to kill the Clothier NPC in your town (Equip it and attack him).
Prepare for the Fight
Make some platforms that extend out of the Dungeon Entrance to the best of your ability and place a campfire. Heart lanterns should not be needed. As far as armor goes, you should be wearing either the Shadow/Crimson set you get from beating the Corruption/Crimson boss and have weapons made of those materials or at least equivalent. Potions (like Ironskin/Regeneration) can be helpful. I did it with just Well-Fed. You can see my guide to useful combat potions here.
For the battle I used a tendon bow (Crimson) with Frostburn Arrows, crafted from Torches and Ice blocks. All parts of Skeletron are susceptible to the frostburn effect, so it's a great help in defeating him for it will deal a little extra damage at times. This beats using an arrow with just +2 more damage, because it deals a damage over time effect that will take 3 life off him each time it ticks. I also had a Cloud in a Bottle which was a great help to dodge the hands. Whether melee or ranged, this is a handy accessory until you get wings.
Fighting Skeletron
Once you commence the fight, you'll see he has two hands that are independent of the head. The goal is to destroy these first, because the head is much easier to avoid. If you can focus one, do so, but it's much easier to simply do as much damage to all of him as possible, based on what's around. Getting some hits in on the head is helpful since he'll spend less time 'enraged' in the latter half of the fight, but the hands take priority. They will make some strange moves, sweeping left to right and require you to jump over them. This is why I recommend the platforms, so that you can spend more time above, drop down if necessary to dodge. In fact, dropping down to dodge is easier than jumping over them, so try to get him up high and go down as needed.
When you've defeated both hands, the fight gets much, MUCH easier. Now you just have to avoid one head, that behaves in a similar manner as before, only tries to come at you a bit more often.
Off with the Head
Well, there's nothing for the skull to come off of, but we're going to off it anyway. Watch for Skeletron's head to spin and take advantage of that. It doesn't pursue you quickly, and actually has less defense when it's spinning. Do not let him back you into the Dungeon where he'll corner you unless he's almost dead. Your campfire should provide ample regeneration, but don't be ashamed to pop a healing potion if you get low.
Victory
After defeating Skeletron, you're likely to get absolutely nothing but the Clothier NPC, who will move in afterward. The drop rates on the 3 useful non-cosmetic items he drops are rather low at 10%. You can get his hand, which is a hook that will help you navigate in the Dungeon, or a spellbook that shoots flaming skulls. None of these are immensely useful, but you can farm him by entering the dungeon and collecting Clothier Voodoo Dolls if you want the trophy/mask for your collection.
After Skeletron
You'll gain entrance to the Dungeon. Inside, you'll find a lot of goodies - namely accessories (especially Cobalt Shield, for combining with Obsidian Skull to prevent knockback and damage from meteore/hellstone blocks), a Shadow Key for opening chests in the Underworld, and a few good weapons like Muramasa (which is an ingredient in the Nights Edge, needed for Terra Blade). In order to access the locked chests inside, you need one-time-use Golden Keys which are dropped by monsters there, as well as smashed pots. Always kill the big slimes, as they drop them 100% of the time. Opening all these chests will give you all sorts of goodies which you can use to boost your character. After beating Skeletron, you will want to prepare for the Wall of Flesh.
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