Rotten around head of rusty nail (4)
I believe the answer is:
brad
'nail' is the definition.
(a brad is a nail with rectangular cross-section)
'rotten around head of rusty' is the wordplay.
'rotten' becomes 'bad' (similar in meaning).
'around' is an insertion indicator.
'head of' indicates taking the first letters.
The first letter of 'rusty' is 'r'.
'bad' placed around 'r' is 'BRAD'.
(Other definitions for brad that I've seen before include "Fixer" , "One to get hammered" , "It has a point" , "Small tapering nail" , "Small tapered nail" .)