Yes, that is basically what they are saying, if you didnt back up your data as you should have, they basically stated they cant recover it.
Ohh, it mean that the webhost is facing some hardware issue with the node. I am afraid you will have to sacrifice your data in case if the webhost don't have backup copy of the node. Well, have you got a chance to refer the SLA/TOS of your current webhost?
They said "If you had backups on your VPS, lets us know where you kept them (what folder) so we can see if we can recover it." Do they mean folders in your VPS or hosted somewhere else?