Try not to panic, it very well could be something like a sebaceous cyst. Tommy has a couple of them, one on his hip area and he used to have a smaller one on his neck area that seems gone now. My RB collie, Cody, had a LARGE one in his shoulderblade area that eventually drained on its own.

There is a bit more about them here: http://www.petplace.com/dogs/sebaceo...ogs/page1.aspx

A sebaceous cyst is a small sac containing an accumulation of secretions produced by the sebaceous glands. Sebaceous cysts are also known as epidermoid cysts, epidermal inclusion cysts, epidermal cysts, and wens.

The sebaceous glands produce an oily substance called sebum, which lubricates the skin. The ducts of the sebaceous glands empty into hair follicles. The development of sebaceous cysts is thought to arise from an obstruction of the follicles, leading to abnormal accumulations of sebum.

Sebaceous cysts are common in dogs. There are no breed, age or sex predilections with respect to formation of the cysts. There is no significant impact on your pet, as these are benign, non-painful growths.
If it's hardened some like you described, that would be my first suspicion. A sebaceous cyst can actually get pretty hard.

The other really common benign lump is a lipoma. They are generally softer but are basically a fatty deposit under the skin. Hopefully it'll just be one of these things and nothing need be done except keep an eye on it.