In this image, you can see damage to the bearing housing seal area, caused by excessive play and wear to the journal and thrust bearings.

In a new bearing housing, the seal area would have a smooth, parallel bore, but as the journal and thrust bearings have worn, the excessive play has caused them to wear away at the seal area, causing a step in the housing.

Excessive play in the journal/thrust bearings is almost always caused by an oil problem. The bearing system relies on a constant supply of clean oil to work effectively, and loss of lubrication for even a couple of seconds will cause wear between the surfaces. Low oil pressure, a disruption to the oil supply, leaks and contaminated oil can all cause damage like this.

If this happens to your turbo, the only effective course of action is to replace the bearing housing, along with the worn bearings.