First, you can level in skirmishes. They are a readily available source of kill XP. With the tight packs of mobs, you can rack up a decent amount of XP in a fairly short time.
And the skirmish marks are for use in a variaty of ways. You can train your soldier at the Skirmish Trainer, you can buy cosmetic gear for you or your soldier, you can buy crafting materials, you can buy reputation items, you can buy armour (not exactly great armour, as you found), and you can buy Legendary Item stuff once you hit 45 and pick up your first LI in LOTRO Gold.
And in case this confuses you as it does many others, the Soldier trait that you rank up, and the soldier skills, have a level. Your soldier also has a level.
These aren't the same. The Trait levels are merely to show the affective level(LOTRO Gold). So if your level 40 soldier had level 50 skills, that means he is a level 40 that is as affective as a level 50.
You should also check out the skirmish guides on the Lorebook. The most useful for your purposes is Arbalister's Guide to Skirmishing followed by the Skirmish Compendium.
