Ok, what you have going on there is someone attempted to repair some rust (or maybe it was dent repair) and bondo'd over parts of the wheelwell. Adding filler to smooth over dent repair in and of itself isn't necessarily a bad thing, but after several years it actually causes more problems that it solves ...as in your case. So what's going on is the metal is rusting from the backside ...probably some moist dirt and water is hung up in the crevice where the inner wheel well comes down and meets the outer skin (there is a small cavity there). Dirt and rocks can get thrown up there from the tires and guys that think it's fun to go "mud'n" need to make sure they clean out little crevices like this when they're done. That moist dirt and crud packed up there ..helped by road salt if you live in the N. creates a nice corrosive situation.
When the metal on the box side corrodes through, the outer sheet metal (again rusting from the backside) it causes the thin layer of plastic filler to expand (rust expands) and that is causing the bubbles you see. Where it's thicker like the front part of your wheel arch it cracks (probably froze and cracked). It gets worse too: when it the filler cracks as it has on your truck, water gets in there and causes even more rusting (because plastic body filler holds water like a sponge). So now you have rust happening on both sides of the outer metal skin! I can almost guarantee you if you took a cut-off tool and cut away the outside of the box over the arch you'd find 2" of wet dirt/mud that would fill a quart container. I've dug into these kinds of repairs lots of times. The other side is probably not too far behind.
Overcoming rust and restoring it like new is like dealing with cancer: you have to get rid of it ALL or it'll continue to spread. You can't just grind it away and re-bondo it (that'll last 6 months!). What one has to do is cut away the metal around the wheel arch and either weld in a new replacement wheel arch and bodyworking it out (a ton of work to do it 'Right'), or better yet, I'd let it go a year or two and find a replacement box from a southern state (Texas/AZ/CA/Etc.) and have it painted to match. Rust-proof the arches of the next box before you put it on the truck.
I've cut metal away and welded on wheel arches before ...and I'm a pretty good bodyman, but it's extremely difficult to avoid metal warpage on the long, flat metal sides of the truck box. And, when you're done you have to find a way to completely seal off the welded seam where the box side meets the new wheel arch metal, or it'll for-sure rust at that seam. In addition, you have to use a fair amount of body filler to smooth the seams of the patch over. For all that work, you're way better off just replacing the box with a different one. Wheel arch repairs don't last very long and rust back in a year or two generally if you live in the N. In the dry S.W. they can be a great solution. There are tons of guys around here ..often independent truckers who buy and bring back rust-free truck boxes rather than come back with an empty load. Usually, around here they sell for $500-800. That's not a whole lot when you figure the work you'd save and get a nice, fresh box. If you check Craigslist maybe you can find a guy selling one for less. I bought one for my Shortbox Chevy for $350 from a guy who was going to replace his truck box but elected to just get a different truck. I jumped on that right away!
Anything less than relacing the box is going to be a temporary and less-than solution and will cost you almost the same amount of time/energy as replacing the box with a nicer $500 unit.
