it's best to check with your dog's veterinarian, but if you want to try to treat the problem yourself first, i can make a suggestion that worked for my dog. purchase some benzoyl peroxide cream, and 1% hydrocortisone cream. After gently cleansing the dog and rinsing clean, mix the two creams together and apply to the affected area.
The first response should be a trip to the vet to make sure there are no serious health issues like mange or a bad flea infestation. You can also try changing your dog's diet. Avoid dog food containing corn (common dog allergen), and consider supplementing your dogs food with quality fats (egg, fish oil) until the problem clears up.
The dog might have ring worm. This will cause hair fall out. Also a poor diet can cause this. Take him immediately to a Vet and have him examined and a complete workup done.
It sounds a lot like "hot spots". These are sores/patches on dogs typically caused by an allergic reaction to something external. Most often, fleas. I suggest a visit to your veterinarian to ensure it's nothing serious. They have cortisone shots that can be administered to relieve symptoms.