What library file did you download?
Skyline knows how to use library files with the filename extensions ".msp" (NIST), ".sptxt" (SpectraST), and ".hlf" (XHunter).
If your library file has one of those filename extensions then you can tell Skyline to use the library by going to:
Settings > Peptide Settings > Library
and push the "Edit List" button and then push the "Add" button and point Skyline at the file.
You can also use the library file by doing "File > Import > Peptide Search" and at the top of the first page of the Import Peptide Search wizard choose "Use existing".
Using a NIST, SpectraST, or XHunter library in Skyline is different than building a library from peptide search results. If you try to go down the path of building a spectral library it will look like Skyline does not recognize the file type, but, really, the problem is that you were supposed to skip the library building step and go straight to telling Skyline to use the file as a library.
By the way, at the bottom of the "Edit Library" dialog at "Settings > Peptide Settings > Library > Edit List > Add", there are links to PeptideAtlas, NIST, and GPM which might take you to a page which has a useful library that you can download.