Confirmed the source of the rust is the hole in the corner of the "shelf" in the wheel well (see the photo from the wheel well side with yellow arrow pointing at hole in a previous post):
Those rust flakes are sitting loosely on the bottom of the rocker panel, I knocked them off the inside/side surface when I was stabbing/probing/banging that area.
Below is the view looking forward -- you can see the rust happily spreading out inside the cavity. Also: evidence of the elusive Canadian Rust Spider, which catches tiny rust flakes in its web!
Mmmm, iron oxide.
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If you remove the rear tire spat, underneath it there’s a hole for rust protecting. Tire spat has seal in it that will seal the opening. You also need to remove the rear tire to have good access to that hole. Spat is held on by one screw on the bottom of the car. Screw screws into plastic so it opens easily.
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Discovered possibly easier ways to access inside the rocker panel:
1) This is the screw you described for removing the rear tire spat/deflector. The screw threads inside my rocker were so rusted, I didn't even bother trying. It's one with the car now.
Multiple, easier-to-access points inside the rocker run all along its length in the form of the fasterners that hold the plastic aero panel to the underside of the rocker itself.
2) There's one round plug/fastener (already removed, see below).
3) The majority of the plugs/fasteners have rectangular bases that make up part of the smooth surface of the panel.
Below: Peek-a-boo through #2.
Also, to the right of the plug/fastener hole, you can see the dirt and grit that has gotten into the rocker through the rust hole in the "shelf".
The plugs/fasteners popped out easily for me by prying with a regular flat screwdriver:
I would highly recommend that any gen. 2 Prius owner open the forward & rear plugs/fasteners under the rocker panels and spray a liberal amount of rust inhibitor inside. Both sides of the car.
And if you have any rust at all on the shelf area, clean it up, re-coat the area with a suitable sealant (normal paint won't stand up to the road grit thrown at this area) and do regular rust protection via the plug/fastener holes.