There are three factors to take into account: weight, body composition and muscle tone.
Weight: As you noted, when you were walking regularly, you lost 35 pounds and the problem was better. Certainly, as you renew your walking program and lose body weight, you'll see improvements.
Body composition: That's the amount of fat you have on your body in relation to the amount of muscle, water, bone and other lean tissues. Body composition is not simply a matter of weight loss. Your body stores fat in various places on your body -- in this case, on the back of your arms. Ideally, as you lose weight, you will burn off fat only and preserve as much lean body tissue as possible, thereby improving your body composition.
But unfortunately, that isn't necessarily the way it works. You always lose some combination of fat, muscle and water. The trick is to lose as much fat as you can without losing too much muscle. You can do this in two ways, by decreasing your fat intake (which is why it's important to monitor your fat intake rather than just counting calories) and by exercising to increase your lean muscle tissue. If you just diet or just exercise you could lose a lot of muscle and water along with the fat you drop. Although your scale weight will certainly take a dip, your fat-to-muscle ratio may not improve much, and you may not be happy with the results.
Muscle tone: Walking, as with most forms of exercise, will help increase your ratio of lean muscle to fat. But unfortunately, it does little to target your problem area, the backs of your arms. To do this, you need to do some exercises to firm up your triceps. Adding some tone to this area will definitely affect the jiggle factor. So here are a couple of exercises that can help:
Bench dips
Sit on the edge of your bed or a sturdy chair with your palms planted on each side of your hips and your fingers hanging over the edge. Walk your feet out a little so that your hips are off the bed; your butt should just clear the edge as you use you arms to lower yourself.
Keeping your knees bent, lower yourself until your elbows are at 90 degrees and your upper arms are parallel to the floor. Use your arms to raise yourself up and continue to raise and lower 12-15 times. Do two to three sets. As this becomes easier, do the exercise with your legs straight.
Triceps kickbacks
Use a small dumbbell or some substitute (such as a can of tomatoes or a bottle of ammonia). Bend over at the waist, resting your hand on a chair, so that your back is flat. Grasping the weight in the other hand, bring your bent elbow up to your side and keep it there. This is the start position.
Now, keeping your elbow pinned to your side, extend your arm back until the elbow is straight, then lower and repeat 12-15 times. Do two to three sets. As this gets to be too easy, increase the weight.
