Hollow lair by edge of forest (4)
I believe the answer is:
dent
'hollow' is the definition.
(both can mean an impression or indentation)
'lair by edge of forest' is the wordplay.
'lair' becomes 'den' (synonyms).
'by' says to put letters next to each other.
'edge of' says to take the final letters (one of the letters on the edge of the word).
The last letter of 'forest' is 't'.
'den'+'t'='DENT'
(Other definitions for dent that I've seen before include "tooth (13) [FRENCH]" , "Slight damage" , "Slight hollow" , "Tend (anag.)" , "Injury to pride" .)