It's rusted at the pinch seam where the quarter panel meets the inner fender. This is tough to repair properly without doing a LOT of cutting. IMO, here's your options.

-Leave it as-is. Go from inside the trunk area with some oily/waxy spray like Fluid Film and coat the area so oil works it's way in there to help slow the rust progression.

-Grind the rust away as best you can with a wire wheel. Bondo over it, then prime and paint. It might last a year before the rust bubbles start to come back.

-Grind, cut and sand blast all the rust away so you are left with clean metal. Clean it well and fill with a waterproof, reinforced filler. I use Evercoat Everglass. After knocking that down you use a finishing filler over top, I use Evercoat Rage. Do your finish sanding with 400 grit, then primer and paint. Epoxy primer, then filler primer would be ideal, however for a small repair this might not be realistic. You could use a direct to metal filler primer which are ok for use over small amounts of metal. Either way, if you don't use a filler primer and block sand back down your repair area, you may see your repair through your final paint. This repair should last quite a while if done right where all rust has been removed. I have one vehicle going on 5 years with a patch job like this with no signs of failure.

-Cut away all rust, as far back as you need to go. Take some construction paper or other heavy paper and make some templates for your patches. Trace them out onto your steel and cut them out. Bend them into shape, you can do a lot with an el cheapo hammer and dolly set. Grind paint away near areas to be welded if not already done, spray the area to be overlapped and the back of your patch with weld-thru primer and mig it with a series of tack welds. Use of a flange tool on your quarter panel to make your new patches at the same level as your original metal, this provides a nice surface for a lap weld. Putting your patch right over top of your existing steel without using the air flange tool will require more filler to get it smooth appearing but can be done. After you grind your welds down and wire wheel off all visible weld-thru primer I use the reinforced filler over the lap joint, then the finishing filler over top, epoxy prime, filler primer and paint. Epoxy prime your repair from the back side as well. Finish off the repair with an oily coating from the inside. I haven't tried it yet but 3M makes a product specifically for this called cavity wax. 5 years ago a shop changed a quarter panel on my car as an insurance job. They are now being billed by the insurance co for a full redo because they sealed the seam where the quarter panel meets the inner fender with rocker guard from the inside and it rusted out.