Each patch of skin is supplied by a single spinal nerve and this is called a dermatome. When you touch that area of the skin that single nerve receives an impulse and takes that impulse to a specific region within your brain where it interprets it as a sensory input (in this case touch) from that region. Obviously it works on an even smaller level than dermatomes as we can distinguish touch from two nearby areas and this is because impulses are travelling up specific neurones which form the spinal nerve