As long as you have water
flow when your engine
is running then you are fine. Of course you want more than a tiny trickle of water
It looks like pretty normal metal oxidation from the heat and being right at the waterline. Try some spray on rust remover and see if that helps. For the stubborn oxidation use some stainless steel
metal polish that you rub on and then use some elbow
grease to polish it out.
One trick is to move some weight up on the bow so your transom comes up a little higher which will allow you to polish the lower portion out of the water.