Mouldy stuff, when applied to reduced image (5)
I believe the answer is:
aspic
'mouldy stuff' is the definition.
(jelly set in a mould)
'when applied to reduced image' is the wordplay.
'when' becomes 'as' (eg 'when I walked' means 'as I walked').
'applied to' means one lot of letters go next to another.
'reduced image' becomes 'pic' (short for picture; 'reduced' indicates an abbreviation).
'as'+'pic'='ASPIC'
(Other definitions for aspic that I've seen before include "Savoury meat or fish jelly" , "Preservative jelly" , "Gelatin product" , "Clear savoury jelly" , "Savoury jelly used to coat eggs etc" .)