It certainly looks like your site has been hacked. I would delete readme.php immediately and patch up your WordPress install if applicable.
This line allows anyone to pass any PHP code to your server (encoded as part of the POST data) and execute it ON YOUR SERVER! This could do pretty much anything! 'evl' looks a lot like 'evil' to me!
Once the hackers have been able to hack your site, they could be using this script repeatedly, hence increase in traffic. It could be used to try and infect other sites, in which case your site has now become the source of the 'virus' which could explain why you dropped on Google!?