They are members of the Testament of the New Ezekiel who are heavily diseased. They live in a forest isolated from the village in Temple Gate, believing that their disease comes from "a sickness in the soul", when in reality they are afflicted with syphilis and gonorrhea.
As Blake Langermann tries to save his wife from the Testament, he's captured and terrorized by the Scalled countless times as he is forced to pass through the isolated forest surrounding Temple Gate. In the middle of the scuffle, Laird "realizes" that Blake is in fact the messiah, and must be nailed up on a cross, buried and resurrected like Jesus Christ, so that the Scalled can eat his heavenly flesh which will heal them of their deformities and they can return to the Testament in open arms. Two of Laird's minions betray him, however, and take the first chance they see to kill him, as there's plenty of evidence of his needless abuse of them. While the Testament and the Heretics wipe each other out by the end of the game, it's unknown what happens to the remnants of the Scalled, but it's likely they simply wandered around the forest until death.
Throughout their encounters, the Scalled are, most of the time, shown to be in a constant state of pain and suffering, which is emphasized by their living conditions being poor to the point in which their homes require ditches for which they urinate and defecate in, cleaning themselves in small streams and constantly vomiting in buckets or all over the ground. For these reasons, their suffering has rendered them extremely desperate due to their desire to be cured and be relieved of their poor living conditions to be welcome back into Temple Gate.
Their desperation is further fueled by Laird's teachings of the Gospel of the Scalled Christ, which has lead members of the Scalled to take more extreme and insane actions upon becoming aware of Blake's arrival in their forest. While some Scalled villagers will simply ignore Blake and even beg for help, others will lash out at him if he gets too close to them or outright try to kill Blake on sight weapons of their choosing. Presumably due to their teachings, some members of the Scalled will even attack Blake by biting at his flesh, potentially revealing cannibalistic tendencies due to their desire for the "Scalled Messiah's" flesh. Furthermore, while some Scalled villagers keep their faith in the Testament, others have also begun to question their faith. This has lead to Laird abusing and killing his followers, for which several members of the Scalled begin to resent him, which further results in Laird and Nick's demise.
The Scalled are humans who have been significantly devolved into rotting, malnourished, grotesque lepers due to a combination between suffering from sexually transmitted diseases and living in extremely poor conditions. The majority of the Scalled are covered in severely infected rashes with pus seeping out of them, as well as others appearing to be unhealthily underweight to the point of being skeletal in appearance. Other physical deformities range from some members having bloated foreheads, while others have all of their veins in their eyes snapped and rendered bloodshot. In addition to their horrific deformities, some members appear to be bandaged up in several areas of their bodies, as well as missing a few of their body parts such as eyes, limbs, noses and lips, as well as what appears to be hair loss for a few individuals. Most of the Scalled also appear to wear heavily ripped up, loose rural clothing, while others seem to lack several pieces of their clothing entirely.