a section that small is also possible to just fill in with new gypsum in one or two coats and level it off to be quite flat with the existing wall. i guess drywalling is a more useful skill to develop in general however, depending on region and materials availability

if you want to do it exactly the same way it was, you’ll need to find some calcium hydroxide power (called lime), empty it into a bucket and keep it in excess water for a week, then mix the resulting putty with sand 1:3 ratio, add in hair or synthetic fiber for reinforcement and apply it to the wall just like they did a hundred years ago. then spend the new few days spraying it to make sure it doesn’t crack as lime plaster tends to when it dries out. on the bright side if you do it right this mix will be quite resistant to damp

however if you are in america you will not be able to find a single contractor who knows how to do this for reasonable money, so a drywall patch is the practical choice. here in europe we also have very cheap gypsum plasters like knauf goldband which could go into this hole easily, but they aren’t as damp resistant as the old stuff, which is also more expensive here

depending on the backer and the composition plaster can definitely lose structural integrity from damp. things like gypsum on brick can get absolutely shredded by salt migration from the brick. then instead of dealing with moldy drywall you have to deal with a wall section that has disintegrated into fine sand, ymmv what you prefer

even lime plaster on lathe can disintegrate if damp is trapped in the plaster behind an impermeable layer like thick paint or wallpaper

definitely source of water intrusion needs to be fixed before any repairs are done to the area. simply a waste of money and effort otherwise