This common condition is just as unpleasant as it sounds. Scaly leg is caused by tiny mites(cnemidocoptes mutans) that burrow into and live under the scales on a chicken's leg, causing them to become inflamed, swollen and very uncomfortable. Through time the legs will become crusty and often bloody because the scales are gradually lifted away from the skin, essentially by the build up of excreta from the mites.
As scaly leg is a parasitic condition it needs to be dealt with as soon as possible. It is extremely contagious, so any bird found to be suffering should be separated for treatment. Treatment can be a slow job and can take weeks on end of slowly breaking down the crust. The legs should be soaked in lukewarm water until the crust is soft, using a soft brush try and remove some of the crusts (remembering that it's a very sensitive area for the bird and should be gentle). After this, a suitable treatment like Just For Scaly Legs should be applied. Just for scaly legs has been designed to target the scaly leg problem.
Never tray and lift the scales on the bird's legs as this will only cause great deal of pain. Any scales affected by the mite, even after treatment, should remain in place until the birds next moult, when they will be replaced. As with all mite infections, you must also clean out and disinfect your chicken coop. Check for any damp patches caused by a leaking roof or similar and fix immediately as scaly leg mites love damp conditions. Chickens with feathered feet are particularly prone to scaly leg, so remember to check their legs regularly