Clean install?

I need to repair my hard drive but the Disk Utility won't work.

I found out that I can insert the disk it came with and install the OSX and then run disk utility and do the repair.[I think it's called doing a clean install]

So I insert my disk and try and install the OSX and it's telling me I need to erase everything on my computer and then I can install it because there's a newer version on OSX on it.[My MBP is 2 years old so I think I have Leopard or Snow Leopard]

Is there any way I do it without having to erase everything?

If I do end up having to erase everything would it be possible to put it all on my Seagate, that currently is holding stuff from my PC? How do I do that?

 

I assumed a clean install wouldn't repair my disk, but I was told doing it would allow me to repair the disk using disk utility.

When I tried to do a clean install it told me that I had a newer version on OSX than what the CD was. The CD is Leopard.

What does Time Machine do? I always assumed that Time Machine helped put all your files onto a external had drive.