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The hard drive has to be replaced. Although the hard drive may be working correctly, SMART status is telling you that your hard disk will fail and you don't know when this is going to happen.
If you have a Late 2009 or later iMac, I recommend you to take your iMac to an Apple Store or reseller, and if you have an older iMac, you can have a look for hard disks in Internet, for example, at OWC > http://eshop.macsales.com/shop/hard-drives/3.5-SerialATA/
It means your hard disk is in a failed condition.
Consider it good news, in that you may have an opportunity to back up its data before if fails completely causing you to lose everything stored on it.
Hard disks can be replaced by Apple or an authorized Apple Service Provider. Expect to pay about $400.
What's you Mac model? You may be able to replace the drive yourself, or buy a drive much more cheaply than from Apple and have it done by an Apple Authorized repair.
If it's more than a few years old, Apple probably won't even work on it.