There is a detailed explanation on this thread: https://www.duolingo.com/comment/11545139.
There is also an article about this here: http://german.about.com/library/blconfus_schlecht.htm
Further inputs can be found in this discussion: http://german.stackexchange.com/questions/2457/schlimm-vs-schlecht
In summary, use schlecht to make an objective, factual observation of something that could be better but is not, and use schlimm to pass judgement or when a negative general or personal consequence is involved. (There are lots of illustrating examples in the above links.)
No, gar nicht means only "not at all" -- you could perhaps think of it as "completely not".
"It is not all bad" would be something like Es ist nicht völlig schlecht or Es ist nicht ganz schlecht or Es ist nicht durch und durch schlecht or Es ist nicht alles schlecht.
Is the second M in the word schlimm indicate that the mmm sound should be held longer or emphasized ?
No. The double mm is a spelling convention to show that the preceding vowel is short.
Compare English pairs of words such as "taping, tapping" or "haters, hatters" or "coma, comma" -- the double mm sounds exactly like the single m; it's only a signal that the preceding vowel is short.
In English, single-syllable words usually don't double the consonant in writing (e.g. tapping comes from tap, not from tapp), but German often has the double consonant even in a one-syllable form.
Perhaps one reason is that German can have one-syllable words with one written vowel which is pronounced long, e.g. Hut, schon, schön, Grab -- in English, one-syllable words with a long vowel usually come from former two-syllable words where the second syllable is no longer pronounced but still written (e.g. "ride, cake, lone" with an -e that is now silent).
An example where single versus double makes a difference at the end of a word is kam (came) with a long vowel versus Kamm (comb) with a short vowel; another is Floß (raft) with a long vowel versus floss (flowed) with a short vowel.
Are there more German words with silent letters?
Not only are there double-consonant spellings to indicate a short vowel, there are also ways to indicate that a vowel is long (sometimes redundantly), especially h and (after i) e. Sometimes even both, as with Vieh (cattle -- related to English "fee").
As an example, (die) Namen "the names" and (sie) nahmen "they took" are pronounced identically despite the different spelling -- a vowel in a stressed open syllable (one that doesn't end in a consonant; the syllables are Na·men) is generally long anyway.
Or gehen, sehen, where the h is not pronounced.
For this, compare English words such as "plaice" (a fish) and "place" (a location), which are also pronounced identically.
(Edited: I retracted a previous example scenario involving a soup.)
Instead, I'll comment on "totally not". I don't use this colloquialism myself, but it seems that "totally not funny" means the opposite of "funny". So, with "totally not severe", it might be taken as meaning entirely healthy (if we are talking about a health issue), whereas "not severe at all" acknowledges an injury or illness but downplays its severity. I think we are better off just to learn "gar nicht" to mean "not ... at all".
I understand that it works like this in English, but in my native language Dutch (which is quite similar to German in situations like this) saying that something is totally not severe has the aforementioned meaning of acknowledging something but downplaying its severity which you contributed to 'gar nicht'. I also made the mistake the other way to translate 'That is not bad at all' to 'Das ist total nicht schlimm', but maybe this just doesn't exist in German.
What dialect of English is that? It would be totally not correct in my English.
Say a friend that is learning how to cook, asks you to taste one of their dishes they made. It's not amazing, but not bad at all. Could you use this to describe the dish?
No. schlimm doesn't work for food. It's more for things such as wounds or catastrophes.
nicht schlecht would work