Wicked---wicking can be wicked!

It will not be obvious to most (and there are even ways for what we can see in the picture to be correct), but unless the foundation steps up on both sides of the doorway, the siding should pretty much never be flush with the bottom of the door threshold.

This little garage was basically built on a slab such that the surface the door sits on is the same level that the building's walls sit on. 

Typically we want to see the building sheathing, that is behind the siding and house wrap, extend past the foundation as it does in Figure B in the drawing below as oppsed to Figure A in the drawing.

If it is higher than or flush with the bottom of the wall framing, water will wrap around under the siding where it can make the wall sheathing wet and wick up the wall.  This wicking and water damage can be seen in pictures of the back side of the sheathing visible at the interior of the building.

The worst sceario for the home inspector is if all the interior walls are finished off and there are no visible signs of water intrusion.

Siding should hang past the wall bottom plate and over the foundation as shown in Figure B of the drawing.

If decay rot occurs to the bottom edge of the sheathing, the structural integrity of the wall structure can be compromised as the building's ability to resist lateral forces (the big bad wolf blowing on it) becomes reduced.  In earthquake country this might not be good and collapse of the building would be possible.

The extent of repairs will require further evaluation to determine how much of the edge of the sheathing has been damaged.  Installation of flashings and siding such that the siding extends past the foundation as shown in Figures B of the drawings will be necessary to create a drip edge for water running down the siding.

Charles Buell, Real Estate Inspections in Seattle