I think you answered your own question. You can increase the muscle mass by doing squats over time, but the appearace of getting bigger or smaller will have mainly to do with the fat content. To make it noticeably bigger with just muscle mass will take some seriously lifting, lots of food, and time.
If you're not already in good shape with a lean body mass and a high metabolism you'll be fighting an uphill battle. - Free weight squats are the best in my opinion. Stretch marks---some people can heal them and some don't.
Chances are you'll loose weight and they'll be less noticable. If you stop excercising you'll gain the weight back along with those stretch marks. Good luck.
Yes Squats do make your butt bigger. Doing squats correctly can make your butt look larger because they alter the shape of the muscles inside of them (Gluteus maximus, Gluteus medius, and Gluteus minimus).
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