how bad is this rust?

That frame rail is toast. At the very least, you're going to have to replace the entire rail. If the rail is that bad though, I would suspect that its not the only thing you're going to have to replace, typically there's a lot of body panel rust before you get frame rust like that. Plus, it looks like some of the frame rail has been cut away, which, unless you did it to look at the rust, would lead me to believe there might be other damage to the rail than just rust damage (collision etc).

A quick search on eBay turned up a few A-body frame rails for under $200, but unless you can do the work yourself its going to be pretty expensive. The engine, transmission, K member and all of the suspension will have to come off. Then all the spot welds will have to be drilled out, and finally the replacement rail will have to be welded in. And there's a lot of measuring that will have to be done along the way to make sure the car ends up straight when everything is done. A reputable shop willing to tackle something like that will probably have an hourly shop rate between $70 to $100 an hour (at least they would in California). And I would guess that they would charge at least a few days of labor for the replacement (minimum), so you'd easily be in the thousands of dollars.

Unfortunately, you could probably buy another A-body in better condition for less money than it would cost to fix that. In fact, both of my '71 GT's cost far less to purchase than it would cost to fix that rail unless you're doing the work yourself. And there's a couple of running, driving A-body's on Craigslist local to me right now that would cost less to purchase and drive home than it would cost to fix that rail.

Unless the car has real sentimental value, or some serious factory options, you'd probably be better off using it for a parts car...