The first step is to remove the damaged wood and see if there is any further concealed damage.

I wish that I could tell what I was looking at. Are those pictures turned on their side? I am looking at an area of wall next to a door and the door trim is visible?

If that is all true, how close to the floor does the damage stop?

I posted in a bit of a state of panic. Sorry. The damaged area is directly under a window that held an ancient air conditioner for years. It's a small area between the window and the top of a built-in radiator. The area was damp and another forum suggested that it is carpenter ant damage as they like wet areas. I've seen one or two of them here over the years, but I think they are pretty much gone.

It was suggested I put down boric acid, stuff it with insulation and go ahead and put the sheet rock repair back up. (and probably pray for the rest of the house, but I can't do anything about that.)

Here is a link that might be useful: Pictures - right side up, it's a long thin area

I would at least replace the badly damaged piece so there is something to support the Sheetrock.

ailing or screw2ing into what remains is not going to be very solid.

Inspect at each end carefully.

The holes do appear large enough to be carpenter ant galleries.

Carpenter ants nest and live in damp wood, but do not actually eat the wood.
There should be a decent amount of frass (sawdust the ants created from the wood) at the bottom of the stud bay.

If you look very closely it resembles tiny shavings in many cases.
The ants scoop out small curls of wood.