This happens too often... In my opinion, though hydration has a strong role in healthy digestion, absorption and general health- You can have the most hydrated chameleon ever, and still have sunken head pads, and vice versa is possible too. You can have the most dehydrated chameleon, and still have relatively filled out head pads. Now what does this mean? IFrom experience, in my opinion it means that the problem lies in the diet and food intake, and NOT in hydration (though hydration is important for digestion and nutrient use, but it is not the cause of this). This chameleon, even without looking at the head at all is very apparently thin and needs to put on muscle and mass, as is evident in the spine as Jake pointed out, but also in the saggy tail base and the lanky arms. The head pads appear to act a reserve of sorts, containing nutrients, helping the chameleon survive through sparse times. Your solution in to offer more food, and also a larger variety of healthy foods. Offer some wax worms in addition to the healthiest feeders possible to supply him with the dietary requirements he'll need to fill out the head pads. It will be a slow process building them back up, and this is because the stress he is going through at the moment.
This is often how wild caught chameleons arrive, because they have likely not eaten for a good long while, and have been stressed out in holding pens further diminishing the reserves.
A fecal float and exam will tell you if he has parasites that could be contributing to this. Many parasites live in the digestive track of their hosts, leeching off of the nutrients from food before the chameleon can utilize them. Unless you know for sure why the fat reserves have depleted so much, it would be wise to have a fecal exam done.
