I had a small red dot come up on my arm that began to itch, became bigger and formed into a cluster of blisters. what could it be?

Painful?: It is difficult to say without seeing the lesion person. A cluster of itchy, painful, oozing blisters can sometimes be a manifestation of herpes zoster.

Viral: This sounds like a herpetic type virus. This description is the type one gets from shingles. This may not be shingles but sounds viral.. One other thing this could be is a type of infection as a staph infection. See the doctor and get treated.