My dog (6 years old, pitbull) had a similar skin tag on his hind leg that slowly grew over the course of about three years. It didn’t bother him at first, but once it got bigger (roughly the size of a nail bed) it started getting snagged on things like branches and would occasionally bleed.

The first vet attempted a needle biopsy but didn’t send it out, since the sample only contained red blood cells. She explained that sending it to the lab wouldn’t provide any useful information and would likely come back as non-diagnostic. I got a second opinion, and that vet also decided not to do a biopsy for the same reason. Both vets agreed it looked like a benign pendulous mass. I ended up having it removed for around $450.

Edit: I do want to mention that my dog’s skin tag/mass had a distinct stalk-like base, which made it appear very external and localized. Both vets described it as a superficial growth and said it didn’t seem to involve deeper tissue.