Some dogs develope what are called "hot spots". They seem to itch and annoy the dog, so they lick it and cause the area to become inflamed. Often, these dogs are diagnosed with allergies. If this was my dog (especially since the spot smells which signals infection) I would take him to the vet at once. The vet will take a skin scraping to see if the problem lies with mites ( a skin parasite ), or an allergy. Please take your dog to the vet.