Scrape over the rotted area of the foundation sill with a putty knife to remove the soft rot from the sill surface. Once you remove the soft rot, tap a putty knife into the wood around the rot with a hammer to dig into the wood by about an inch. Do this to create a rectangle shape around the rotted section and the chisel the wood out little by little with the putty knife and hammer to remove the entire rectangle.
Measure the depth, height and width of the empty space in the wood. Cut a block of wood of this size out of a wood board. Apply a thin, even layer of wood preservative to the block of wood with a paintbrush and let the preservative fully dry.
Cover the back of the piece of the block of wood with a thin, even layer of wood glue and put dots of wood glue around the edges. Press the block of wood into place in the sill and hold it for about five minutes until the glue adheres. Drive two wood nails through the wood and into the main section of the sill to further secure it.
Remove all rotted sections of the rotted foundation sill. Cut down wood pieces, apply preservative to them and place them in the missing sections of wood to fully repair the seal.