The Torah refers to the Etrog as "Pri Es Hadar"-the beautiful fruit. The Oral tradition from Moshe identifies this fruit as the Etrog. The first Halacha in Shulhan Aruch, Siman 648, regarding Etrog is that a dry Etrog is invalid, because it is a lack in its "Hidur" (beauty). Nowadays, everyone can get a fresh Etrog. However, one must remember that in past years, Etrogim were often scarce, and they would be imported and preserved for many months until brought for use on Succot. Maran states that the dryness of an Etrog can be determined by passing a threaded needle through the Etrog. If the thread comes out totally dry, the Etrog is invalid. If it has moisture, the Etrog is still Kosher.
The Poskim ask how Maran can suggest a test by piercing the Etrog; Maran himself quotes the Rambam in the next Halacha that an Etrog that was pierced from end to end is invalid, even if nothing is missing from the Etrog! The Mishna Berura (Rav Yisrael Meir Kagan of Radin, 1839-1933) offers a number of reconciliations. One approach, taken by the Magen Abraham, is that Maran suggested sticking the eye of the needle with the thread into the Etrog, not the pointy part. The thread does not need to cross the entire width of the Etrog to become moist. Such a partial piercing does not invalidate the Etrog.
The Hida (Rav Haim Yosef David Azulai, 1724-1807), in his Mahasik Beracha, suggests a different test for dryness. He says one can slightly puncture the Etrog with a needle; if the little hole congeals, there is still moisture in the Etrog, and itís not considered dry. If the hole remains, it is dry.
The Rema adds that as a rule, after twelve months, an Etrog is automatically considered dry. After a year, the Etrog usually becomes hard as a rock.
Often, Etrogim have scab marks on the surface. These come from thorny leaves which pricked the fruit while it was growing on the tree. These blemishes do not invalidate the Etrog, although one should seek an Etrog that is clean and clear as possible. The Mishna Berura points out that there is a common misconception that ANY problem that happened to the Etrog while still on the tree does not invalidate it. This is NOT true. If it would become lacking in its wholeness while on the tree, it is invalid. This leniency was only stated regarding the leaf blemishes.
A dry Etrog is invalid; so is an Etrog that was pierced from end to end. The scabs caused by the leaves of the tree do not invalidate the Etrog