First, let's make clear what the acronym SKU means. From the English Stock Keeping Unit, it is the physical unit of the product. This means that the SKU is the variation of the product. It contains the characteristics that make it a specific type of product.

If your store has a Shirt product, its SKUs might be Blue Shirt, Red Shirt, and White Shirt. Another way to classify your SKUs could be: Blue Shirt S, Red Shirt L and White Shirt XL.

In the Catalog hierarchy, the SKU is just below the product.

Structurally, first you define the product information and then you create your SKUs.