The pattern is created as a combination of knits and purls (she says), and revealed by using alternating bands of contrasting shades (in this case, two rows of white and two rows of black). The knits and purls raise and lower the surface to hide or reveal the colours behind.
My wife is overly modest about these things, but I got 'twixt mother and child to make this quick video and show off her skills. All credit goes to her - knitting is a mystery to me, but I will pass on any comments and questions you have.
She found the pattern at Ysolda.com, but used it backwards to turn the skull over at the other end of the scarf (otherwise only one image would have been upright when the scarf is worn)