I'm sure others will add their comments, but you're basically correct. If you have "paper and pencil skills," it means that you can do basic math and understand basic mathematical principles without having to use a computer or a calculator.
If you've ever had a store clerk tell you that something costs $4.27 cents, you hand that person a $5 bill, and then say "oh wait - I have two pennies" and seen a totally blank look, that person does NOT have basic pen and paper skills. The computerized cash register will say to give back $.73 in change and she'll give you back your two pennies as well. Someone with basic pen and paper skills (even though he's not using paper) would immediately grasp that that means you get back three quarters in change.
They can be more comples than that, but if you understand basic math concepts, you can figure out the the calculations on paper. If you lack those skills, you don't know what to do without the computer programs telling you.