I am using an unrooted Xiaomi phone running Android 4.4, and activated developer mode. The development options include "Skip Lockscreen". What is this? Will it this cause any functional problems for my device?
Typically, Android devices default to having no lock screen. Apparently Xiaomi didn't like this; it is a pretty terrible idea to leave your phone unprotected from others, after all, unless you don't care about theft or its contents. As such, the option to disable the lockscreen is "hidden" in the developer options. Presumably this is to help developers who need to go through the load → test → modify → reload cycle often and don't want to be constantly unlocking their devices.
A lock screen is also required to make use of Factory Reset Protection; see this answer for more details. Otherwise, there is no other functional issues. The lock screen is purely for security and privacy purposes.