Basically, when using a smarthost, the MTA will send all outgoing mail to that host (usually an ISP's SMTP relay for its customers), while processing all local mail locally.

This is the sort of setup most dialup UNIX users need to use. For example, for Sendmail, the configuration in sendmail.mc goes like this:

define(`SMART_HOST', `mail.example.net')dnl
define(`confCON_EXPENSIVE', `True')dnl
define(`RELAY_MAILER_FLAGS', `e')dnl