A blister happens when water penetrated the outer gelcoat of the boat and gets into the glass matting. The water reacts with the resin, expanding and causing bumps or blisters. The causes of blisters are well documented elsewhere (try MarineSurvey.com) so we won't go into that here. What is shown is how we dealt with our blister problem. I don't claim this is the best way to do it, but it seems to have worked for us over the years.

This blister was found during our initial sanding off of the paint. The gelcoat was sanded off the raised area, exposing the glass underneath.

Here we are grinding out the rotted fiberglass. You can see the moisture still in the blister. All the rotted fiberglass and the moisture has to be removed.

The blister is partially ground out. We could tell when we had gone far enough when the glass turned from pink (rotted) to white/gray (good)

Here the right side of the grinding is into good glass, but we still need to remove some from the left side.

Her the blister has been fully ground out. This was one of the smaller ones.

Here is another blister, you can see where they got their name, this looks almost like a flesh wound..
After the blisters were ground out, they were allowed to dry for a while. Unfortunately, we were on a tight schedule with an upcoming race and having to return the trailer, so we didn't let them dry as long as we would have liked, but we felt that we ground most if not all of the moisture out of them, so we could proceed with filling and fairing them.
We used a Structural Filler to fill and rough sand the holes. The fill had glass strands in it and proved to be very good at bonding to the hull. We wiped the holes with Acetone first to clean them out. The filler was sandable after about 20 minutes. After the rough filler was sanded down, we used 3M Premium filler for the final covering. When we ran out of the Premium filler, we used VC watertight. For this application, I prefer the 3M as it dried faster and was a little easier to sand, so, we went out and got some more.

Here you can see some of the blisters after being filled and sanded. The 4 dark spots are thru-hull fittings. I didn't get any good pictures of the finished blisters, at this point, we were really rushed for time and were putting in 12 hour days to get the boat done.
Notice the stands we had to buy so we could drop the pads on the trailer. The club has a lift rated at 10,000 pounds, but the A-frame structure is old and the boat empty weighs 10,000lbs, so we just decided to do it on the trailer. This way, we didn't have to drop the mast, which would have been an adventure in and of itself.