That looks bad and hard to repair/look good again. I would take a sharp knife and cut out a square big enough to remove the rotten wood...if there is a good stud close by, cut over that for nailing the repair pc. Remove all rotten wood and clean/prime the area. Glue in some exact size thickness pcs of wood to support the cut line and for nailing the repair pc....I'm assuming there was insulation, make sure that's fully dry and put back. Find a pc of exact size material cut and install it. Use small screws or a nail gun to fasten new pc and old paneling...put the hammers down for this job
You should caulk the joint and smooth with putty knife....ready for wallpapering with something similar or go nuts on an accent wall