Press F1 or turn SMART off. SMART is usually far too nervous about anything up with your drive and will flag it up, even if something the drive itself can handle/recover from. Tho its a sign that the drive is starting to wear out and time to start backing stuff up.
The keyword(S) here being Backing Up, If windows boots, make a system image immediately. Better save than sorry. Mainly because Windows may never boot again.
Exactly. Before trying to "fix" or revive the HD or even restore the data, always make backup first! Best option after that is to clone the HD and then try to get data from the clone. That way the original is not accidentaly damaged or data overwritten... making further data rescue harder or impossible. SMART warning/error is usually indication that you should at least check your backups are in order.