I have grown this apple tree from a seed and so far it has been healthy and growing really quickly.
It sits on my window sill with plenty of light and although it is far down in the plant pot, this hasn't been a problem for it so far.
I water it every day, but never too much as there is no drainage. The soil is damp to touch at the moment. I also give it a small amount of plant food once a week.

I did add some new soil on the top at the same time that the red spots appeared.

Hopefully someone will be able to help before I loose it completely!

Doesn't look very happy?

I'd take the little chap out of that pot he's in and put him into a 3" pot to grow on.

It look to me as if the pot you are growing him in has no drainage holes in the bottom and that waterlogging may be the main problem, also being sunk down like that away from good light.

Seedlings hate to be sitting in water, it's one of the easiest ways to kill them.
Try repooting him so as he looks something a little like the ones in this picture, and let him almost dry out between waterings.
Oh and take off the dead leaves carefully :-)

http://i746.photobucket.com/albums/x...rry-week-5.png