1. Grover's algorithm is applicable to symmetric cryptosystems, like AES. It searches for secret keys in a quantum-optimal manner. Shor's algorithm is the much more serious threat which endangers asymmetric (public-key) cryptosystems like RSA. It uses the quantum Fourier transform to attack integer factorization and discrete logarithm problems.
2. This 3-qubit implementation corresponds to 2^3 items; it is still extremely far off from being practically usable against AES-128. Moreover, Grover's algorithm can't be credibly used to break AES-256, as it improves the search time by approximately halving the number of items to be searched (i.e. AES-256 is reduced to 128 bits of security, AES-128 is reduced to 64, etc).