When the tattoo is originally applied to the skin, the pigment is forced down into the first few layers of the skin, creating permanent color. The skin begins to react to this new intruder and starts swelling as a reaction to the trauma caused by the needles repeatedly penetrating those deep dermis layers. This reaction is the beginning of the scab formation, which appears later.
Once the tattoo has a chance to start the healing process, which begins shortly after the tattoo is complete, changes in your skin begin to appear. The tattoo starts to scab over, similar to a scab that may occur if you've been badly sun burned. This is a natural reaction, as the top layer of skin becomes a little crusty, protecting the open wound (tattoo) underneath.
After a few days, the natural healing process of the tattoo causes the skin to form a complete scab over the entire image. This scab should be very thin and flaky if you've taken care of your tattoo correctly.
Once the tattoo finishes healing, the scab begins to peel, eventually falling off completely on its own. During this time, it's important not to pick the scab or it could pull the ink out of the fresh tattoo underneath.