My dog's losing fur on his back leg near his nails. What should I do?

This appears to be a skin infection that's causing this to be red/inflamed and lose hair. They usually get this when something gets stuck in-between the toes, or a primary infection develops in the skin or under the toenail. It's best to have a veterinarian examine him sometime in the next day or so, because if something is stuck under the skin, then it will need to be removed in order for the wound to heal. Otherwise it can get much worse.

For now you try doing to following:

1) Clip the hair around the area and expose all of the sore skin.
2) Wash/spray the area with just cool, clean water (no soap or other antiseptics) for at least 5 minutes at a time. Do this at least twice a day.
3) Bandage the wound with gauze and apply an over-the-counter antibacterial cream (i.e Neosporin) to the wound.

Keeping it covered and keeping Sammy from licking it will be the most difficult part of the treatment. You can help keep the bandage on by placing a good (really sticky) tape above and below the bandage. You can find sprays in the pet store, like bitter apple, that are meant to deter licking. This can be sprayed on the bandage (not the wound) to help keep Sammy from chewing it off.

NOTE: Be careful not to bandage too tight or it can cut-off the circulation. If you notice that the toes/foot starts to swell, then remove the bandage and leave it off until the swelling goes down.

I hope that helps and Sammy gets better soon.