I want to get it so the inside has that gradual cutout while the edges of the peg stay high - kind of like the opposite of extruding but when i tried to do it manually by gradually lowering each section more and more it didnt look that great.
Was just wondering if there was a better way to go about doing this?
If I understand you problem correctly, you just need to select the vertices at the centre of the curve you want to affect, go into an Ortho view where you are looking at the object directly from the side, use Proportional Editing (the little circle button at the bottom beside the magnet), and drag the vertices downward (when you type G a circle appears which you can adjust with the scroll wheel to control how many vertices come with the drag).