Background/Objectives: The use of artificial intelligence (AI) in dermatology is expanding rapidly, with ChatGPT, a large language model (LLM) from OpenAI, showing promise in patient education, clinical decision-making, and teledermatology. Despite its potential, the ethical, clinical, and practical implications of its application remain insufficiently explored. This study aims to evaluate the effectiveness, challenges, and future prospects of ChatGPT in dermatology, focusing on clinical applications, patient interactions, and medical writing. ChatGPT was selected due to its broad adoption, extensive validation, and strong performance in dermatology-related tasks. Methods: A thorough literature review was conducted, focusing on publications related to ChatGPT and dermatology. The search included articles in English from November 2022 to August 2024, as this period captures the most recent developments following the launch of ChatGPT in November 2022, ensuring that the review includes the latest advancements and discussions on its role in dermatology. Studies were chosen based on their relevance to clinical applications, patient interactions, and ethical issues. Descriptive metrics, such as average accuracy scores and reliability percentages, were used to summarize study characteristics, and key findings were analyzed. Results: ChatGPT has shown significant potential in passing dermatology specialty exams and providing reliable responses to patient queries, especially for common dermatological conditions. However, it faces limitations in diagnosing complex cases like cutaneous neoplasms, and concerns about the accuracy and completeness of its information persist. Ethical issues, including data privacy, algorithmic bias, and the need for transparent guidelines, were identified as critical challenges. Conclusions: While ChatGPT has the potential to significantly enhance dermatological practice, particularly in patient education and teledermatology, its integration must be cautious, addressing ethical concerns and complementing, rather than replacing, dermatologist expertise. Future research should refine ChatGPT’s diagnostic capabilities, mitigate biases, and develop comprehensive clinical guidelines.