Corrosion around hot water heater connection?
This appears to be corrosion which is caused by the dissimilar metals. Installing a dielectric union between the two pipes should solve the issue. There already appears to be a union installed on the cold water supply line.

Installing one of these unions should put an end to the corrosion you are seeing. They come in a variety of configurations. You will want to purchase one that is threaded on both sides. The brass end would attach onto your pipe and the zinc end would attach to the tank itself. One thing to make sure is that you will want to find one that is lead free.



http://www.watts.com/pages/_products_details.asp?pid=6855


  Series LF3003 Lead Free* Dielectric Unions are used in commercial and residential applications to prevent accelerated corrosion and deterioration in the piping system due to galvanic and stray current. It is installed between pipes made from dissimilar metals, and features a female iron pipe thread to female brass pipe thread connection. It consists of a union nut, two tailpieces, and a gasket that separates the tailpieces to prevent an electric current from occurring. Series LF3003 is ideal in applications such as hot water storage tanks, water and air conditioners, processing tanks, steam, gas, and water piping. Maximum Pressure: 250psi.