I'm trying to fix my wall for the first time and I've no clue on how to fix this wall with paper showing. I've applied "ready Patch" on top of the paper and after couple minutes you could see the paper bubbling up. Do I have to cut the paper out first and then apply compound? Why there's paper in the first place? What would be the proper way to fix this? What materials do I need?
That is paper drywall tape. It covers joints between sheets and prevents cracking. It's doing this because there wasn't enough joint compound ("mud") underneath to bond it.
Your best bet for fixing it is to cut back the paper to somewhere where it's well bonded; get some fiberglass mesh tape; apply tape and coat thinly with setting type compound (not premixed); apply another coat or two of setting type compound; sand flush; then use orange peel texture in a spray can to re-texture.