A steel hull rusts from both sides: from the sea outside, and from the bilge water, condensation and trapped damp inside. Coatings slow it down. Where they fail, plate gets thinner, and the outside of the hull can look sound while the plate behind is wasting.
How a surveyor checks it
Gauging. An ultrasonic thickness gauge reads the plate from one side. The surveyor in this gauging report calibrated a 5 MHz gauge on a known 5 mm plate and took readings on a 12 by 24 inch grid across the underbody and keel, with extra readings wherever there was deep pitting, holes, fractures or thin edges on structural members.
The limit. That report applied the US Coast Guard's NVIC 8-68 guidance: no more than 25 percent wastage of original thickness. On the 5 mm hull plate in the report, that put the limit at about 3.75 mm. Class societies and flag states set their own limits for the vessels they cover. Pitting is judged on its own: one deep pit near through-thickness needs repair whatever the plate around it reads.
Where to look. The inside is where steel boats usually go: bilges that stay wet, under tanks and engines, behind linings and insulation, round deck drains and at the turn of the bilge. Outside, look at the waterline, round anodes and fittings, and anywhere coating has broken down. Dissimilar metal at fittings such as a mast step needs isolating from the steel; see stray current corrosion.
What you can't gauge. Filled and faired topsides can't be read reliably. The report in the source gauged only the underbody and keel for that reason. Say so in your report.
What decides the grade
Thickness against the original and the limit. Plate below the limit, or pitting near through-thickness below the waterline, is an A. Plate approaching the limit is a B: regauge to measure how fast it's going. Coating breakdown on sound plate is a C.