FLT means fault. It illuminates after the water heater tries to light on gas three times and fails. You then need to turn the water heater off to reset. It will also illuminate for a few seconds on initial fire up on gas. Once the water heater lights, the light should go out.
Yes if you turn both switches on, both systems (gas and electric) will operate simultaneously. It's perfectly fine to do so.
wmtire will be along shortly with links to good reading material about your water heater.
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