A reallocation occurs whenever a sector goes bad. If your drive can't read a particular LBA (logical block address), then the corresponding physical sector is taken out of service by the drive and transparently replaced by a good spare, ie a spare sector is "reallocated" to the faulty LBA. This is done transparently by the drive's MCU, with the OS being unaware of it. SMART keeps track of the reallocations and triggers a SMART failure if the number of bad sectors increases beyond a certain threshold. In your case the threshold has already been exceeded. HD Tune is telling you that your drive now has 4126 bads. Typically the threshold is reached at 2000 or so bads.
Furthermore, attribute BD is indicating 177 High Fly Writes. I don't know how serious this is, though.
This article explains the meanings of each attribute:
http://en.wikipedia.org/wiki/S.M.A.R.T.