Hi,
IF it is fungal it could be Ringworm, which is a common fungal infection of the skin.is characterized by patches of rough, reddened skin.Body ringworm (tinea corporis) can affect any part of the body except the scalp, feet, and facial area where a man's beard grows. The well-defined, flaky sores can be dry and scaly or moist and crusty.
Ringworm can be transmitted by infected people or pets or by towels, hairbrushes, or other objects contaminated by them. Symptoms include inflammation, scaling, and sometimes, itching.
Topical applications of antifungal herbs and essential oils also can help resolve ringworm.
If it is only skin discoloration which is common at the knees a keratolytic/demelanizing cream can be applied to the affected area to improve the appearance.