This is a video representation of 6000 Angry Bees guide on how to use Override Materials to change skins in SFM.

Unlike before, where we could only have a model wear one skin set because of the way the folder priority acted on skins that bore the same path and same filenames, we can now override the materials that cover mesh and assign new basetextures to different instances of the same model in a session. This allows us to be able to use the same model multiple times and have them wear custom skins without having to hex or recompile models to make them unique or worrying about material folder priorities.

This can be accomplished on any .mdl file, not just characters.