Shankar is called as Krittivasa because he wears the skin of an elephant. As per the tales of Puranas, Lord Bhootnath killed the demon Gajasura and dressed himself by his skin.
In Sanskrit the process by which something is cut or tied, that is called Kritti and the process by which something is covered that is called Vaasa (cloth). Thoughtfully the whole world is Kritti and it has to be cut through the process of negation. And then it is used to cover Parmatma (Supreme-self). This world itself is like the cloth by which the Lord has to be wrapped.
Bondage and liberation, both stages are derived from the term ‘Krittivasa’. When concealing nature of Kritti is joint with Vaasa, it leads to bondage and when cutting nature of kritti is joint with Vaasa, it leads to liberation. The scholars have concluded that negation of creation does not guarantee liberation but a firm conviction about the falseness of creation that neither it existed before nor if will remain after, such conviction guarantees liberation. Aalwal defines this name as under—

वाराणस्यां शिव! त्वद्भक्तांस्तुदन्तं गजेन्द्रं विप्रोत्सृष्टाभिचारव्याघ्रं च शूलेन हत्वा।
चर्मद्वन्द्वं तदीयं प्रावृत्त्य विभ्राजमानोस्येकाम्रे चन्द्रलेखामौले! ततः कृत्तिवासाः॥

Purport! O Lord Chandrachooda! You are shining at Kashi by wrapping around the skin of both the creatures, who were killed by you and they were Gajasura, who was torturing your devotees in the form of elephant, and the lion which was sent by the sages of Daruka-forest to hurt you. Therefore your devotees call you by the name of Krittivasa.
The Krittivasa form of the Lord displays the renounced state of the Lord. It shows that a seeker should not accumulate much in life. At some points, it is said that Shankar acquired this skin during the pastime of Nrisingha’s pacification. There is a beautiful description of Krittivaseshwar Madadeva in Saur-Purana.