Power surge upstairs, all power out, 1 outlet sizzling
Most likely explanation:


The outlet had a bad connection, and the wire finally popped out enough to cause trouble. This is very bad for the outlet, as electricity will arc across short distances; this caused the sound and smell. (This is an infamous failure mode of back-stab outlet connections.)
The other outlets went out because they're daisy-chained together, and there was a bad connection at that one outlet. (I don't think you're supposed to do that, but I wouldn't be surprised. Not that big of a deal, it's just not up to code.)


Alternately:


The outlet that was arcing may have had a short in it. Electricity was able to go directly from the live to the neutral. This is very bad for the outlet, and caused the sounds (electrical arcing) and the smell (burning plastic).
If the breaker/fuse tripped it was because the circuit was using way too much power. This caused all the other outlets to go out because they are on the same circuit. If the breaker didn't trip, the other outlets went out because there was a dead short in the circuit.


In either case, once the outlet is replaced, everything should be fine. Items plugged into other outlets shouldn't be damaged, and other outlets shouldn't have been damaged.

However, your question sounds like the bad outlet hasn't been replaced, and the power is back on. If so, this isn't good. The power should be turned off at the breaker/fuse box until the bad outlet is replaced.

In general, this would be a good time to make sure your smoke alarms work, and know where your breaker box is located. While I wouldn't expect a repeat, that's just a good idea in general, and you're a motivated learner right now.