Not sure how to fix this drywall with paper showing
That is paper drywall tape. It covers joints between sheets and prevents cracking. It's doing this because there wasn't enough joint compound ("mud") underneath to bond it.

Your best bet for fixing it is to cut back the paper to somewhere where it's well bonded; get some fiberglass mesh tape; apply tape and coat thinly with setting type compound (not premixed); apply another coat or two of setting type compound; sand flush; then use orange peel texture in a spray can to re-texture.