A Skeleton Mummy was a construct created by Dr. Rex and Señor Palomar to patrol the Desert Region of Adventurers' Island. It possessed a power allowing it to create additional Skeleton Warriors to fight alongside it.
Dr. Rex was aware of the Skeleton Pirates and their activities in the Golden Age of Piracy, and that they were feared and hated by the Pirates. While he was planning the Dino Attack, he wondered if there might be some way to ally with the Skeleton Pirates. But, since they had been completely defeated by the Pirates, these ideas came to naught.
Then, shortly before the Attack actually started in 2010, Dr. Rex allied with Señor Palomar another villain active near Adventurers' Island. Together, the two villains decided that they needed to guard the desert (as it was a likely place where Dino Attack Team would attack; since the jungles were filled with Mutant Dinos and other obstacles. Dr. Rex then remembered his earlier ideas and proposed the Skeleton Mummy. While he specialized in biology, he employed scientists skilled in engineering and machinery, and so hired them to design it.
His scientists then hired mercenaries to steal dead bodies and brought them back. The bodies were augmented with bizarre technologies, turning them into something between a zombie and a robot, before they were mummified and deployed throughout the desert, hidden at various Pyramids. They were ordered to exterminate and convert any Minifig life they ran into.
The first encounter the Dino Attack Team had with them was when Reptile was leading a group of Dino Attack agents across the Desert. An advance guard was sent to a Pyramid containing a Skeleton Mummy. The Mummy massacred the team and then began converting them, using it's power of reanimation. This just started when Reptile and a second team arrived, which then began battling the Mummy, and its slowly growing army of skeletons.
Skeleton Mummies were also used in the defense of a XERRD Fortress located on Adventurers' Island. While the initial wave was eventually defeated through the use of flamethrowers and other weapons that could destroy the mummies. After Dino Attack Team led an assault upon the fortress, Señor Palomar activated more Skeleton Mummies to overtake the fortress and kill everyone inside.
A Skeleton Mummy had two built-in abilities, or powers. It had a death ray, which took the form of a pulse of red light, which instantly killed whatever it touched. It could also do some damage to structures. It also had a reanimation ray, which could turn a dead body into a Skeleton Warrior, which would fight alongside the Mummy in battle.
Technically speaking, the Skeleton Mummy is not quite the same as a Skeleton Pirate. The Mummy is a skeleton that was enhanced with technology and "animated" with one purpose- to kill. However, Skeleton Pirates are self-aware and are skeletons animated by spirits. (The skeleton warriors animated by the Skeleton Mummy are believed to be self-aware and more like the Pirates, but this is uncertain).
Skeleton Mummies are quite difficult to control, even for XERRD. They are known to kill and reanimate Mutant Dinos as well as Dino Attack agents, and agents of XERRD feared that, left loose, the mummies would kill anyone in their path, nondiscriminatory towards Dino Attack and XERRD.