I suspect that your dog may have pyoderma - which literally means "pus-skin." A photo would help me to be more certain of this, but from your description I am very suspicious.
Pyoderma is a bacterial skin infection that is seen as red pimple-like lesions usually found in the groin area, and the armpit area. The little red spots may look like tiny pimples and they are filled with bacteria and pus. When they fill up larger they can look like blisters.
There are normally small numbers of bacteria living on the skin surface, but when they invade the skin like this it is called pyoderma. If there is just one patch, you may be able to treat it by washing the area with an antibacterial soap. One example would be chlorhexidine scrub (which you can get at pharmacies off the shelf in Canada and the USA). I suggest people wash small areas of pyoderma 3 times daily for 3 days. Rinse well. Pat dry. Then continue to wash twice daily for 4 more days. Watch VERY closely that there are no more patches coming up.
If this rash is in more than one small area your dog will need to go on oral antibiotics to get it under control. Oral antibiotics for skin infections are often given for 2-4 weeks in order to resolve the problem.
Here is more information:
So, please have a look at the links that I have provided. Do the photos shown look like what your dog has? If not, it would be very helpful if you could post a photo as I described above. If this does look like what your dog has, you may be able to resolve it if it is in a small area only (say, the size of the palm of your hand). If it is larger than this then your dog will likely need oral antibiotics, so a trip to your vet is needed.
Now, I think that part of the reason why your pup may have developed this problem is from wearing diapers. If the skin cannot "breathe" then it will stay warm and damp and this is a perfect place for bacteria to grow. So, it is really essential that your pup become house trained!
That said, Yorkies are notoriously difficult to train, in my experience. So... let me start by saying that this is going to be a bit of a challenge.
There is a critical age for house-training, and if a dog is allowed to pee and poo inside (even though it's on a blue pad) during that critical period, it is really tough to get the idea through to him that he can't do it anymore. Also, if your boy wakes up, thinks, "Oh, I need to pee!" and then does it on the floor, his behaviour is rewarded because now he doesn't have the discomfort of needing to pee anymore. So, it is really important to try to stop that pee from happening! More below about that...
Also, if you *catch him in the act* of peeing or pooing inside, then you can tell him NO and take him outside. But, even if you are 1/2second after he finished, there is no point in telling him he is bad. If you take him over to a puddle and tell him he is bad, he pretty quickly learns that it is bad to go near a puddle of pee, and looks guilty and repentant.
But he does *not* learn that he mustn't MAKE a puddle of pee. There is just too much else going on in his world, and he won't connect the discipline with MAKING the puddle.
In your dog's world, it is ok to pee and poo inside, on a blue pad. Now, because there were other pee smells around, he thinks it is ok to pee anywhere inseide.
What I would suggest you do is set aside a weekend to work on this really really intensely. Try the following:
- Buy some blue pads. Put them outside in the yard. Take your Yorkie to the blue pads every couple of hours. If he DOES do his business on them, CELEBRATE! Go crazy with praise and treats and telling him how happy you are. Take blue pads with you out on a walk. Put them down along the way to give him the idea.
- Hang some bells from the door handle to the back yard (or whatever door he uses to go out to pee). Every time the door is opened or closed the bells will ring. Now, if he goes and nudges the bells with his nose, TAKE HIM OUT right away! Dogs quickly learn that when they go out the bells go, and if they want out they can make the bells ring. Obviously the bells have to hang low enough for a short guy like your pup to reach them! Now, he has a way to ask to go out.
- If you can have a visit from a friend with a VERY well house-broken mature dog, that may help too. This dog can go outside and urinate in the area where you would like your dog to go. This may help him to get the idea!
Furthermore, I would suggest using the "umbilical cord" method of training for at least one whole weekend. It may take longer with your boy because he has been urinating in your home for 4 months and he thinks that is just fine! With this method of training, you put him on his leash while he is in the house with you, and attach his leash to your belt. Now, he is on an "umbilical cord" and can't get more than 3 or 4 feet away from you. Thus he can't disappear to go pee in the other room, and you will be able to catch him in the act every time! When he starts to posture, tell him NO! and scoop him up and take him outside to his blue pad on the lawn. Wait there with him until he does his business. CELEBRATE!
Lastly, you may need to resort to crate training your pup. A crate is supposed to be a dog's den, NOT a prison. They have a very strong instinct not to pee or poo in their own den, and will hold it as long at they can. A crate needs to be the right size - so he can stand up, turn around, and lie down. If it is too big, he will choose to sleep in one end and urinate and defecate in the other. Here are some links about how to crate train so it is a positive experience for you and your boy:
Good luck with this! If you feel my answer has been helpful, please hit the "accept" button. And if you have more questions about this, I'm happy to help.