A Live CD is basically a complete Linux system that runs entirely off a bootable CD, and will not affect any data that's on the hard drive. Live CD's are excellent tools to let people get a taste of running Linux, but without having to actually install it. A Live CD will not write any data to your hard drive, and so you can pop in the CD and be running Linux, then go back to your regular operating system by just removing the CD.
So, as a very basic description, if you wish to try to recover data from a faulty disk drive, one thing you could try would be to boot up a Live CD (such as Knoppix), then copy important files to a USB pendrive (for example). Obviously if your hard drive is failing then that may likely affect your ability to recover specific files. Along those lines there is a popular utility called foremost
that can be very helpful in a data recovery operation
Lastly, I would point out that the only files you really would need to recover would be in your /home directory. There's no point in spending the time trying to recover any system files because they can be restored by simply reinstalling your distro. Good luck with it