There are so many factors.
Ping? Reaction time? Knowledge?
When I think of skill, I think of their mechanics and knowledge of the game. How well do they perform? How well do they execute techniques? But also - how well do they react to situations?
It's all tied together. No one can ever be the 'perfect player', although some might get close.
And I don't think that an ideally perfect player would be able to win all fights, either. If you get dropped into lava because someone flicked a switch in a place that you simply could not have been aware of, then is that really your fault?
Or if you're in a Forced Deathmatch against a team of 10, the numbers are simply working against you.
A perfect player wouldn't be able to always escape damage, either - sometimes you simply have to take a few hits to win the fight.
However, if it comes to sheer mechanics, I think that reaching the "skill cap" would be if you hit every bow shot, fishing rod cast, and can time your hits to perfectly align with the game mechanics. It's not only talent, but also incredible skill that is simply unobtainable.
"Do I move back?"
"Can I get a combo?"
"Will this person go for a crit, or use their fishing rod?"
"Can I expect them to use their flint and steel?"
So, I think there is a skill cap. No one can ever reach perfection. But the skill cap is high enough that people can continuously improve, even if they're #1.