Books were indeed bound in human skin historically, although human skin was hardly the preferred binding material of most book binders. Anthropodermic bibliopegy, as it is called among academics, has been practiced for hundreds of years, although it had largely disappeared by the 18th century. Some very fine examples of books bound in human skin can be seen on display in museums around the world, and they also appear in private collections. Such books periodically come up for auction, sometimes fetching high prices because of their macabre historical value.
Although it may creep you out to think about it, human skin can be preserved through a tanning process, just like leather. According to rare book specialists, books bound in human skin feel much like other leather books or books bound in vellum, finely scraped sheep or calf skin. Books bound in human skin were prepared with both hard and soft covers, and the cover was often stamped and decorated, sometimes with a small plate indicating the provenance of the binding.
Historical evidence suggests that books bound in human skin are quite ancient. Many societies historically made ghoulish displays from body parts of executed criminals or soldiers captured in war; the Assyrians, for example, were fond of flaying prisoners alive and displaying their skins on city walls. Certainly the practice was reasonably well known by the Middle Ages, when the memento mori was quite in vogue. Records from the medieval period indicate that people kept things like skulls, bones, and patches of skin as decorative objects which were meant to be reminders of inexorable fate.
Skin for binding books typically came from executed criminals, along with anatomy lab cadavers; at one point, dissection was actually included in criminal sentences for particularly heinous crimes, capitalizing on a religious belief that people who were dissected would not be resurrected at the Last Judgment. In some cases, people apparently willed their skin to authors or book binders after their death; in the 20th century, prominent animal rights activist Ingrid Newkirk echoed this practice in a publicity stunt, auctioning off a piece of her skin for charity with the proviso that the skin would be made available after her death.
Historically, anatomy books were common candidates for human skin binding; some examples of anatomy books even include samples of tattoos on their bindings. In a few cases, accounts of famous criminals were bound in the skin of their subjects. Human skin binding was also used for a range of other books, including religious texts.
You may have even handled or seen a book bound in human skin at some point in your life, especially if you have been around antique books. The process of tanning typically destroys the DNA which could be used to identify the source of a book binding, and as a result historians usually only know that a book has been bound in human skin when the book itself indicates this. Many libraries around the world have several books bound in human skin in their collections; visitors who want to examine these texts must look at them in climate controlled rare book rooms which are designed to prevent damage to the book.