What does it mean when your belly button is red and crusty?

I would be : concerned about infection like impetigo. Try cleaning with hydrogen peroxide, and apply topical antibiotic ointment. If not better in a week see your derm

Skin infection: Most likely you have a minor skin infection that may respond to topical antibiotic (Neosporin or triple antibiotic ointment will be okay if you have no medication allergies). If no improvement in 3-4 days, schedule appointment with you doctor.

Umbilicus : It's difficult to say without actually seeing the affected area, however you appear to describing Psoriasis. The umbilicus can be involved in Psoriasis. Check to see if there is any family history of psoriasis in your family. Allergic Contact Dermatitis amongst other conditions may also cause similar skin eruption. You should consider visiting a Dermatologist for further evaluation.