I guess you are already aware of it, but the setup you are looking at, is badly broken to begin with. How can a server with 5 physical disks be running two RAID5 arrays? You need atleast 6 disks for that. You are missing one disk to begin with.
Does that mean it'll fix itself or I need to replace a drive?
I would assume your second Logical Drive is running in degraded state since a few month as someone already took a broken disk out without replacing it. The "INTERIM RECOVERY" state means a disk is missing/broken, but due to the redundancy provided by the RAID controller, the data is still accessable for now, until a second disk is going to break. If the data on the second Logical Drive is important to you, I would advise you to boot the system with a live CD and copy the data of to a safe location as soon as possible. In the long run, you'll need to add the third disk back to the server, so the array is able to rebuild and return to a healthy state.
Does that mean if I delete the logical drive and recreate it, I could
reinstall the OS?
That should be possibly if we assume the drives are really OK as shown in your screenshot. You could also try to start from your HP SmartStart CD and run the Array Diagnostic Utility. The ADU log will show more details then the screenshots you posted. It may be possible, that you are able to simply reenable the Logical Drive in the ADU, for example if the reason for the failed state is a temporary problem with detecting the drives.