It means your internal hard drive is failing. You can try Drive Genius to analyze the drive (demo will analyze). Another analysis program is Smart Utility. Another step you could take is to boot to an OS X DVD (boot holding the C key down) and bring up Disk Utility, and do a repair disk, however, with the AHT error message, that likely won't work. From Disk Utility, you can do a secure erase of the hard drive then restore from backup .... depending on the nature of the hard drive problem, that may only be a temporary reprieve.
If you have AppleCare or the system is < 1 year old, take the system to Apple and let them replace the hard drive. Note they'll keep your existing drive as a trade it, which bothers some people due to personal data on the drive.
If none of those steps give you insight into a fix, then you'll need to replace the internal hard drive with either a 2.5" serial ATA (SATA) drive of your choice or an SSD. For notebook drives, I like the Western Digital Scorpio Black drives which have a 5 year warranty.