What could be wrong with this dog and what would you do *long*?

Dogs, especially older ones get fatty tumors quite often. If he seems otherwise healthy and happy, eating normally etc I would just keep an eye on it. If he seems like he is in pain or his eating habits change I would take him in to the vet. It was very kind of you to take him in but if you can't afford him perhaps you could check with a local rescue that may take him in. What it comes down to is you have to do what's best for the dog. Good luck to you.