That is most likely a graphics card issue. There is a small chance it’s a problem with the display itself but doubtful. Either way, it’s not good news. The graphics card on that iMac is embedded onto the logic board so it’s not an inexpensive repair. The entire logic board must be replaced. And as I think further about it, since you were able to take a screen shot that means it’s very unlikely that it’s the display. Any physical problem with the display would not show within the software process of a screenshot.

It’s probably the graphics card. If you have applecare, the store should be able to fix it at no cost.