It's too late to do any more than slightly slow the problem by sealing
the exposed wooden surfaces of the drain hole.

If you like this boat and plan to keep it, you will want to cut the rot
out of the transom. Be sure to go a few inches beyond the point where
you "think" the rot ends when scarfing in the new piece. You should be
able to cut away part of the fiberglass on the outside of the transom
and spoon out the punky wood, cut a new piece of the best marine ply
you can find, and then glass up the exterior again.

This is a great chance to learn from the bad practice of the original
builder. Any hole drilled through a wooden member- transom, stringer,
etc for the purpose of draining water should have the edges sealed up
to prevent water from wicking into the surrounding area and promoting
rot. If it were my project, I would cut the drain hole large enough to
accept a drain plug with a bronze collar fitting. Seal the edges of the
hole with a layer of glass and resin, and then bond the bronze collar
into the sealed hole- perhaps using epoxy.

One rot gets a foothold, it is relentless. Transom rot on small boats
is fairly common, and as most are outboard powered it is double
trouble.