**Core Concept**
The question is testing the ability to identify a specific dermatological condition and choose the appropriate diagnostic investigation. The condition in question is a type of skin lesion characterized by peripheral scaling and central scarring, which is a classic presentation of a specific fungal infection.

**Why the Correct Answer is Right**
The condition described is most likely a case of Majocchi's granuloma, also known as kerion, which is a manifestation of tinea capitis (ringworm of the scalp) or tinea barbae (ringworm of the beard) that has spread to the skin. The peripheral scaling and central scarring are due to the body's immune response to the fungal infection. The investigation of choice would be a skin biopsy to confirm the diagnosis and identify the causative fungus.

**Why Each Wrong Option is Incorrect**
* **Option A:** A skin biopsy is more specific and sensitive than a KOH (potassium hydroxide) preparation for diagnosing fungal infections, especially in cases where the diagnosis is not clear.
* **Option B:** Wood's lamp examination is useful for diagnosing certain fungal infections, such as tinea versicolor, but it is not the investigation of choice for Majocchi's granuloma.
* **Option C:** Scaly skin lesions can be caused by a variety of conditions, including psoriasis and eczema, but these conditions do not typically present with central scarring.

**Clinical Pearl / High-Yield Fact**
Majocchi's granuloma is a type of fungal infection that can be treated with antifungal medications, but it often requires a combination of topical and systemic therapy to clear the infection.

**Correct Answer:** C. Skin biopsy