I was playing Elder Scrolls V: Skyrim and then all of a sudden my computer shut down. After 10 seconds I heard a loud noise and smelled smoke near my power supply.
Gigabyte 585W PSU
Intel Core 2 E8400 3.0GHz
Ram: 3GB DDR3
My question is how might this have happen as my powersupply is not even 5 months old, and whether my other components including my graphics card would be fried as well as a result?
I detect a Bottleneck in your system. A modern graphics card won't perform best when the CPU can't even calculate as fast as the GPU. Also Gigabyte isn't a good PSU company, they're good for manufacturing motherboards, but not PSUs. Go with Seasonic, Corsair, or Antec for PSU. My thoughts: PSU. Worst case scenario is that your PSU discharged a lot of electricity before it fried and destroyed both your CPU, GPU, and Motherboard.
The Gigabyte Odin 585 W unit is actually peak rated, its continuous power rating is only 460 W, its two rails will give theoretically up to 34 A of current on the 12 V rails, likely only about 32 A which is only 384 W. Odds are you over stressed it and it blew itself up. The Odin doesn't have much info out about it and its capabilities, it likely isn't capable of being run at high load for extended lengths of time.
The only way to know if it took anything else out with it would be to get a new PSU then test the system, try to get a unit that isn't peak rated this time around.
The best tutorial articles you will find on PSUs are at HardwareSecrets.com. They also do the best competent technical reviews (i.e. with load testing, waveform analysis, and dissection). Jonnyguru.com also has excellent reviews, as does HardOCP.com.
Seasonic, Antec, Corsair, Enermax/LEPA, and XFX are among the better brands. A quality modern PSU will have full range active PFC (no little voltage switch) and some level of 80+ certification for efficiency.
I had two power supplies blow up on me in the past 3 years. One was a Powermax, and another a Gigabyte 450W.
It was an idling file server PC. I replaced my gaming PC with an FSP 750W and my file server with a corsair 650W Gold+.
Some of the less trusted PSU brands use less than reliable parts.
It is important to consider that your PSU often only provides less than 80% efficiency and with each 6 months of age a certain percentage of degradation is expected (depending on load). An 90%+ utilised power-supply will degrade very fast and often fails within 3 months. (my gaming pc lasted 2 months without a PSU upgade on a 550W Powermax psu)
peak rating isn't bad by itself, however, it is bad when the companies hide the continuous power rating and try to make the unit look better than it is.
Anyways, if you google "who's who of PSU" it should give you a tom's article. Avoid any company that isn't OEM or a designer, but that doesn't mean all OEM and designers make good units. So Seasonic, Antec, Corsair, OCZ, and so on design (and may actually manufacture) their PSUs. Also, just because a PSU is from a good brand, doesn't mean the PSU is good. Corsair has put out a stinker before, and so have Antec and OCZ. Read reviews on sites that do thorough reviews, like jonnyguru, hardwaresecrets, and xbitlabs before committing to a specific unit.
Both of the units that outlander posted are good units. They aren't the best units available, but they are cheap and you won't run into your problem again since they have proper current limiting and will shut off if you try to draw too much power.