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Why is SMART overall-health self-assessment test result: PASSED being displayed when the two tests done failed?

sudo smartctl -a /dev/sdc 
smartctl 6.6 2018-12-05 r4851 [x86_64-linux-4.14.98] (local build)
Copyright (C) 2002-17, Bruce Allen, Christian Franke, www.smartmontools.org

=== START OF INFORMATION SECTION ===
Model Family: Western Digital AV-GP (AF)
Device Model: WDC WD20EURS-63SPKY0
Serial Number: WD-WMC1T2763021
LU WWN Device Id: 5 0014ee 6addb4b7c
Firmware Version: 80.00A80
User Capacity: 2,000,398,934,016 bytes [2.00 TB]
Sector Sizes: 512 bytes logical, 4096 bytes physical
Device is: In smartctl database [for details use: -P show]
ATA Version is: ACS-2 (minor revision not indicated)
SATA Version is: SATA 3.0, 3.0 Gb/s (current: 3.0 Gb/s)
Local Time is: Sun Feb 24 13:43:30 2019 GMT
SMART support is: Available - device has SMART capability.
SMART support is: Enabled

=== START OF READ SMART DATA SECTION ===
SMART overall-health self-assessment test result: PASSED

General SMART Values:
Offline data collection status: (0x00) Offline data collection activity
 was never started.
 Auto Offline Data Collection: Disabled.
Self-test execution status: ( 117) The previous self-test completed having
 the read element of the test failed.
Total time to complete Offline 
data collection: (27240) seconds.
Offline data collection
capabilities: (0x7b) SMART execute Offline immediate.
 Auto Offline data collection on/off support.
 Suspend Offline collection upon new
 command.
 Offline surface scan supported.
 Self-test supported.
 Conveyance Self-test supported.
 Selective Self-test supported.
SMART capabilities: (0x0003) Saves SMART data before entering
 power-saving mode.
 Supports SMART auto save timer.
Error logging capability: (0x01) Error logging supported.
 General Purpose Logging supported.
Short self-test routine 
recommended polling time: ( 2) minutes.
Extended self-test routine
recommended polling time: ( 275) minutes.
Conveyance self-test routine
recommended polling time: ( 5) minutes.
SCT capabilities: (0x70b5) SCT Status supported.
 SCT Feature Control supported.
 SCT Data Table supported.

SMART Attributes Data Structure revision number: 16
Vendor Specific SMART Attributes with Thresholds:
ID# ATTRIBUTE_NAME FLAG VALUE WORST THRESH TYPE UPDATED WHEN_FAILED RAW_VALUE
 1 Raw_Read_Error_Rate 0x002f 200 200 051 Pre-fail Always - 0
 3 Spin_Up_Time 0x0027 180 179 021 Pre-fail Always - 5991
 4 Start_Stop_Count 0x0032 100 100 000 Old_age Always - 113
 5 Reallocated_Sector_Ct 0x0033 200 200 140 Pre-fail Always - 0
 7 Seek_Error_Rate 0x002e 200 200 000 Old_age Always - 0
 9 Power_On_Hours 0x0032 092 092 000 Old_age Always - 6354
 10 Spin_Retry_Count 0x0032 100 100 000 Old_age Always - 0
 11 Calibration_Retry_Count 0x0032 100 253 000 Old_age Always - 0
 12 Power_Cycle_Count 0x0032 100 100 000 Old_age Always - 56
192 Power-Off_Retract_Count 0x0032 200 200 000 Old_age Always - 46
193 Load_Cycle_Count 0x0032 200 200 000 Old_age Always - 66
194 Temperature_Celsius 0x0022 122 114 000 Old_age Always - 28
196 Reallocated_Event_Count 0x0032 200 200 000 Old_age Always - 0
197 Current_Pending_Sector 0x0032 200 200 000 Old_age Always - 0
198 Offline_Uncorrectable 0x0030 100 253 000 Old_age Offline - 0
199 UDMA_CRC_Error_Count 0x0032 200 200 000 Old_age Always - 0
200 Multi_Zone_Error_Rate 0x0008 200 200 000 Old_age Offline - 1

SMART Error Log Version: 1
No Errors Logged

SMART Self-test log structure revision number 1
Num Test_Description Status Remaining LifeTime(hours) LBA_of_first_error
# 1 Short offline Completed: read failure 50% 6354 4377408
# 2 Extended offline Completed: read failure 90% 6354 4377408

SMART Selective self-test log data structure revision number 1
 SPAN MIN_LBA MAX_LBA CURRENT_TEST_STATUS
 1 0 0 Not_testing
 2 0 0 Not_testing
 3 0 0 Not_testing
 4 0 0 Not_testing
 5 0 0 Not_testing
Selective self-test flags (0x0):
 After scanning selected spans, do NOT read-scan remainder of disk.
If Selective self-test is pending on power-up, resume after 0 minute delay.

Because your SMART attributes are all in good shape and there were No Errors Logged.

Please read: ATA drive is failing self-tests, but SMART health status is 'PASSED'. What's going on?

If the drive fails a self-test, but still has 'PASSED' SMART health status, this usually means that there is a corrupted (uncorrectable=UNC) sector on the disk. This means that the ECC data stored at that sector is not consistent with the user data stored at that sector, and an attempt to read the sector fails with a UNC error. This can be a one-time transient effect: a sudden power failure while the disk was writing to the sector corrupted the ECC code or data, but the sector could correctly store new data. Or it can be a permanent effect: the magnetic media has been damaged by a bit of dust, and the sector could not correctly store new data.

If the disk can read the sector of data a single time, and the damage is permanent, not transient, then the disk firmware will mark the sector as 'bad' and allocate a spare sector to replace it. But if the disk can't read the sector even once, then it won't reallocate the sector, in hopes of being able, at some time in the future, to read the data from it. A write to an unreadable (corrupted) sector will fix the problem. If the damage is transient, then new consistent data will be written to the sector. If the damange is permanent, then the write will force sector reallocation. Please see Bad block HOWTO for instructions about how to force this sector to reallocate (Linux only).

The disk still has passing health status because the firmware has not found other signs of trouble, such as a failing servo.

Such disks can often be repaired by using the disk manufaturer's 'disk evaluation and repair' utility. Beware: this may force reallocation of the lost sector and thus corrupt or destroy any file system on the disk. See Bad block HOWTO for generic Linux instructions.

You can try to fix your unreadable sector, either with dd or with some kind of "repair utility". Backup your drive first!

With smartctl, there is no simple command that tells you everything is okay... smartctl -H is a false friend, not to be trusted. You have to look at the full output.

SMART overall-health self-assessment test result: PASSED

As long as it says PASSED, it doesn't mean anything, so just ignore it and replace the failed drive anyhow.

Offline data collection status: 
 (0x00) Offline data collection activity was never started.
 Auto Offline Data Collection: Disabled.

On a sidenote, consider enabling Auto Offline Data Collection, and set up smartd to run selftests periodically and send email notifications.

Running a selftest once every 6354 hours is too unreliable, and without regular testing, hard drive errors go undetected until it's too late to do anything about it.