What happens when they get waterlogged from rain, mouldy and warped?

Much of the timber is transported and sat in water to begin with. The weathering could cause warping and mold, etc, but a great deal of the timber industry at this time in this area was harvesting and processing old growth trees that were so compact that warping was minimal and any mold could just be wiped off. These planks were also not sitting in these stacks for long.

Did they ever have issues with termites?

Yes and no. Termites were there but not a consistent issue for making and shipping planks. Their habitats are destroyed in the sawmill process and these stacks were moving out and shipped out rapidly for termites to meaningfully colonize. It was easier to ignore and discard termite damaged wood as it was processed than anything.

What is the black abyss below him, is he on a stack of wood that is casting a shadow or has the ground texture.png not loaded in correctly?

I am willing to bet: dock and/or barge. So water, but its 1937 so lighting is not everywhere.

Being the early 1900's, did workers smoking while stacking wood regularly cause fires?

Not really. It's all so wet for a cigarette to cause a fire.

Now the sawmill had fuels that were flammable, but this isn't like mattress foam warehousing. This is solid, fresh wood that isn't going to ignite from a cigarette.

Is this ai?