ive seen that cotton fungus on fish before, heck i almost bought an infected fish until i noticed it had it. i took it to the manager and he said its a body fungus.
I also did research. It will attack your fish's skin and cause ulcers or death (worst case scenario) Large amounts of organic materials such as decaying food or fish waste can cause a breakout of fungus in your aquarium. Open wounds can develop fungus. Though cured easily, if the fish doesn't get prompt treatment it will surely die.
Symptoms: White or grayish patches appear on the skin or gills that look like cotton or wool.
Treatment: Either purchase a treatment from your lfs specifically for fungus or buy an all round antibacterial treatment such as Melafix.