Row 1: P2; *skip next st, k in BACK LOOP of next st, k skipped st (TWISTED ST); k 3, p 2, repeat from *.
So I'm reading this as: Purl 2 stitches, *skip the next stitch (which means leave it on the left needle),
So far, so good. You are right P the 2sts, * don't do anything to the stitch right at the end of the needle.
knit the next stitch in the back loop (and I'm thinking slip it over the skipped stitch and off the left needle?),
No, just knit the second st from the left needle tip in the back loop. It is a little like a purl really, you go into the st straight on, right to left, but behind the left needle, yarn around and knit it from that position, but don't take anything off the left needle at this point. See the next step....
knit the skipped stitch and slip it off the left needle (this makes up the Twisted Stitch pattern);
After you knit that second stitch in the back, reach the right needle around and knit the stitch you skipped in the regular place. Now let both of the stitches you worked into off the left needle. You knitted the stitches out of order, making a twist.
k 3, p 2, repeat from *.
Does that explain it well enough?