I visited an island and there was a skeleton there in armor that was glowing red. When I killed him, he dropped a golden skull that was glowing green. What am I meant to do with this? I can’t put it into my inventory and behaves like treasure. What are you mean to do with these skulls?
The bounty skulls need to be brought back to a vendor. If you head back to the nearest outpost, lookout for a Order of Souls Madames. This is a sort of witchy looking person with skulls and potions around the shop. You will be able to sell the skull here for gold and reputation, the same way you get this for selling chests.