The crystal skull was discovered on P7X-377, a single artifact on a pedestal at the end of a long elevated causeway inside a cavernous Mayan pyramid. It is identical to the skull found by Daniel's grandfather, Nicholas Ballard, in 1971 in Belize, now in the Smithsonian. It was believed to be a teleportation device which acts in conjunction with the cavern of the pyramid. Looking into the eyes of the skull causes intense lepton and muon radiation in a tremendous energy field that transports one to an alternate dimension or phase in which one appears to be invisible to others but is able to see the giant aliens of Quetzalcoatl's race.
When Daniel looked into the eyes of the skull, he became invisible to the others. Only his grandfather, who had had the same experience years before in Belize, was able to see and communicate with Daniel while he was in the alternate dimension. When the team returned to the planet, the crystal skull once again activated, shifting O'Neill, Carter, and Nicholas Ballard into the alternate phase where they encountered Quetzalcoatl. Nicholas Ballard chose to remain behind on the planet, but by looking into the eyes of the skull once again, the others were able to return to their own physical dimension.
The technology of the crystal skull may have some similarities to the technology of Merlin's phase-shift device, which also emits traces of lepton radiation, however Daniel's previous experience with the crystal skull did not enable him to see Carter or Mitchell when they were shifted out of phase by Merlin's device.
Episode Reference: Crystal Skull