The Sky Object works the same way as it does with native materials. Like the ground object, which is an infinite plane and can only be translated or rotated, the sky is an infinitely big sphere and only be rotated.
Spherical/ER-2:1 would work best. For other types of projection you could, for example, create a huge cube and use that as your sky. (The correct Cubemap UVs given). However, cube maps are better suited for reflection.(edit: with a smooth subdivided cube, the rest should work just as well and have less stretching)
Just try it on a sphere and you should find the correct solution quickly.