Definitely will need a larger cage - it will make a world of a difference.
Humidity:
Wrap 3 sides of your cage in plastic. I use plastic shower curtains that I measured and cut to fit the sides. I attached using Velcro. Some people say wrapping 2 is okay. I did that, and ended up wrapping an additional side because of the dry indoor heat in the winter. So go for 3. This will help tremendously with humidity and keeping water in your cage.
Live plants are crucial (IMO). They help retain humidity, filter air, and help your chameleon feel more at home with naturalistic elements. Popular safe plants: hibiscus, ficus, umbrella plant, pothos (excellent)... there are others that are safe. I consult FL chams safe plant list when I’m buying.
The dot on your cham’s hand could be a minor burn. Does he ever scratch at the top of the cage? Could have burned his hand doing this near the lights. Common behavior if cage is too small or if your Cham is not happy with husbandry. It should come off with time & shedding.