Apple insect damage
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It is likely to be plum curculio damage. Plum curculio is a common apple insect pest that begins piercing holes in small fruitlets around this time of the season. The female adult pierces the fruit in order to lay her eggs in it. Over time, the larvae from the eggs tunnel through the fruit, creating additional damage. The hole that is formed will scab over and grow as the apple grows. The infested fruit is certainly still edible, however you will want to cut around the damaged part. Removing the fruit and throwing it away may help reduce plum curculio populations by preventing the eggs from reproducing again. However, there are many plum curculio insects in the environment, so doing this may not make a meaningful dent in the population. Therefore, if you would rather let the fruit grow and then use the damaged fruit, that is understandable. It is up to you.
Bagging will help reduce future infestations of plum curculio and apple maggot. Insecticides are also available for controlling plum curculio.