Promotions are based on a crewmember's experience. Some of the promotions are given out while at sea. As far as I can tell you don't have a direct influence on who gets these promotions. Other promotions are given out when in port, in your crew management screen in your office. You can pick and choose who to give these promotions to. Experience is gained through action, such as sinking ships. I'm tempted to say that a more experienced crew can dive quicker than a rookie crew, but I am not 100% certain on this, its just an observation that a brand new crew seems to take longer to dive, but once you've dived a couple times (crash dive, regular dive, etc) your crew seems to get the hang of it. Once they get the hang of it it does not seem to improve. Again, I cannot substantiate this for certain tho.
Skills are an indication of a crewmember's ability. The skills do not often relate exactly to a particular position in a sub, but certain crewmembers will be better at different jobs. For example you would want to place a crew with high Watchman skill on Deck Watch, or a crewmember with a high Guns skill at a gunner's position. Other skills are not as obvious... It is important for a crewmember in the radio room to have a decent Electrical ability, but Watchman also helps.
Qualifications are crew that have begun to specialize. These qualifications are directly related to the crewmember's job in the sub. You want a crewmember with Torpedo qualification in a Torpedo Room, or a crewmember with an Engine qualification in the Engine room. Other qualifications are more spread out, Command qualification will have the most effect in the Command Room, but will still be beneficial if used in the leader position of another compartment. The crewmember's qualifications in the command room also have an effect on the efficiency of the other compartment rooms.
Health is like hit-points. A crewmember with zero hitpoints is dead.
Morale is tied in with your crewmember's ability to lose fatigue. A crew with high morale will fatigue slower, and regenerate faster when resting.
This is just a basic synopsis of how it works in the game, I'm sure a pretty large writeup would be required to fully explain everything about crew management and how it works.
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