It is used a lot on business or school related events. For example "smart casual" would mean the dress code is not business casual, but just casual leaving it to your consideration; hence the smart part. So you can wear whatever you want as long as it fits in and it's not ridiculous or too casual, really depending on to the occasion.
So in conclusion, the "smart" part means they leave it to you to figure out what would be appropriate to wear to such event/occasion/place,
On a side note, there have been talk sometimes about "smart clothes", them being clothing with some technology element to it, maybe a small computer fit it that lets you listen to music or changes something for you (think Back to the future's jacket that would fit itself to you), or clothing that uses new kinds of textiles that would for example, adapt to the weather or rain. I do think it would be more common to hear about the dress code, but I leave both options since you didn't give much of a background on the question.
Hope this helps.