For some reason the image link got censored.. here it is uploaded to the forums instead
That looks rather nasty! Since it is red, it could mean there is infection, so nothing to take lightly (not saying you are!). It could have originated from a wound, or could be an allergic reaction to something, or other reason(s); best to have kitty checked out by a vet right away before it gets any worse.
So far as I can tell from the photo it looks rather like an abcess which are easy and cheap to treat with antibiotics. However a photo isn't the same as seeing the cat, plus I'm not a vet. The vet can tell you what sex your cat is as well, and if your cat isn't neutered yet talk to the vet about that as well.