In general, what spclark said. Specifically for this area:

My take on this one is that the bottom panel is in serious trouble. It's lost all its protection in some spots and the wood is compromised.. The fact that the edge has been exposed to water is bad, It seems to have sucked water into the interior of the plywood panel. This is not just a refinishing job, it's a restoration. But it is definitely fixable.
What I'd do if it was my boat:
1. Determine if there's rot and how much. Find an area of the boat with the same kind of seam pattern that is OK and tap on it with knuckles. Note the sound that it makes and the feel. Do the same thing with something hard, such as the handle of a kitchen knife held by the blade. Then push on the wood with your finger, paying close attention to the feel, how/if it flexes and if it makes any kind of sounds.
2. Repeat on the bad spot. Look for differences in sound and feel from the good spot. Specifically, rotting wood will make duller sounds. It will be quieter, mushy and muffled. The wood may feel softer. It may move and flex. It may be possible to push a thumbnail into it. If the area seems bad, try lightly pushing into it with a sharp knife point. If it goes in easily, there's rot.
3. Once rot is identified and defined, I'd mark out an area at least 2" wider than the rotten area and cut it away. I'd examine the cut edges and make sure that the wood is sound. If not, cut more.
4. When all the rotten wood is gone, I'd replace it with fresh and then get on with the refinishing.
If somehow you're lucky enough that there's no rot, then I'd sand away all the damaged wood and build the thickness back up with fiberglass cloth, after which it'd be just a refinish job. Be sure to extend the new glass at least 2" beyond the repair.
This is a bunch of work. I know, but it's a lot less than building a new boat from scratch. If you don't do it, the structure and strength of your boat will be compromised and it could turn into a major safety issue. The Skerry, especially when compared to traditionally built boats, has very few frames because the pre-stressed hull panels are carrying the structural loads. That means that your panels must be in good shape or the boat may collapse.
If you don't feel that you have the skills, time or tools to do this and you're near Annapolis, CLC offers repair and restoration services.
Good luck,
Laszlo