Why can I not draw with a pencil on my hand, while a pen works perfectly? As far as my understanding goes, a pencil is able to write on paper, because of friction, bits of graphite re scrapped of from the lead. But then why is it that it doesn't work on my hand?? A hand is quite rough obviously. Or is there any different mechanisms at play here? 
Also, pens in general work easily on my hand — do they use a bit different fundamental principle to write??
 A: 
do [pens] use a bit different fundamental principle to write?

Absolutely! As you pointed out, a pencil leaves a trail of solid graphite particles behind when you scrape it across a surface that is both rough and harder than the graphite itself*. If you look at paper under a microscope, you will see that it is very rough at the scale that counts.
The tip of a pen, on the other hand, is wet. Whether it's a conventional ball pen (wet, sticky goo), or a "gel" pen, or a felt-tip marker, or a fountain pen; it transfers the wet ink to any surface that can be wetted by the ink.  That's a process that happens on a much smaller scale than the process that rubs flakes off the tip of a pencil.

* Thanks Daniel R. for mentioning the hardness aspect.
A: I would think that a ball point pen uses friction to rotate the ball so that it picks up ink from its reservoir to lay it on the surface. In contrast, as you already pointed out, the pencil uses friction to actually remove bits of graphite to put on the surface.
Although the surface of the hand  is rough perhaps it is too irregular (grooved) compared to paper for laying down a continuous layer of graphite. The ink from the pen, on the other hand, probably flows into the grooves. Clearly the pencil is not as effective as the pen for writing on the hand.
Hope this helps 
