Shiva as Kapali, or Kapala, is one with a begging bowl made of human skull. The story of Shiva as Kapali is mentioned in the Mahabharata. Legend has it that the Kapala that Shiva has in his hands is the fifth head of Brahma. Symbolically it is holding the inflated ego in our hands – a constant reminder that we are just a bubble.
The story in the Mahabharata states that once there was a dispute between Vishnu and Brahma as to who was the greatest. Shiva appeared in the form of an endless column of fire and asked them to find the source of the brilliance. Whoever finds it is the greatest.
Brahma went up and Vishnu went down to find the source. Vishnu soon realized that it is impossible to find the source and returned. Brahma on his way up found a Ketaki flower and asked the flower about its origin and it said it was coming from the origin of the brilliance but had started its journey millions of years before. Brahma did not try to go further up to find the source, instead took the flower with him as witness.
Brahma soon reached near Vishnu and announced that He had reached the origin of brilliance. Shiva got angry over this lie and immediately cut off the fifth head of Brahma.
Brahma cursed Shiva to roam over earth with human skull. Shiva in return cursed that Brahma will not be worshipped by people.
Another Story
One story states that once Shiva took the form of Bhairava and cut off the fifth head of Brahma for being arrogant about His creation. Brahma had no remorse about the suffering that living beings had on earth.
But soon Shiva felt remorse and for redemption of the sin, Brahma asked Shiva to become a wandering ascetic (Bhikshatan) and beg for food in a skull. He will only get redemption when Vishnu will advice him on how he could atone for his sin.
In the beginning, Shiva did not get permission to meet Vishnu at Vaikunta so He wandered all around the world.
Finally Shiva got opportunity to enter Vaikunta and Vishnu advised him to go to Banaras (Kashi or Varanasi ) and do ritual bath in Ganges to be purified of the sin.