The person who found the skull thought that the nasal cavity in the center must be an eye socket, and the legend of a one-eyed giant was born.
Scientists have found mammoth fossils in Greece. Rather than an elephant's skull, it could have been a fossilized mammoth skull that inspired the cyclop's story.
The tale was handed down generation to generation along with the skull. Details changed over the millennia as each generation forgot some of the original story and added some parts relevant to themselves. In time, the people forgot that the mighty beast had a trunk, They improvised an eye to explain the cavity in the center of the skull.
Because really, isn't man the most monstrous of all creatures?
We may be afraid of saber-toothed tigers, but it is man who truly terrifies us.