Microsoft dropped smart tag support in Windows XP and IE 6. They were not included in either shipping product. The following information was written prior to this disclosure by Microsoft.

"Smart Tags" are used in Office XP and Internet Explorer 6.0, not Windows XP (as of pre-release candidate 1).

The way Smart Tags work in Internet Explorer is, after the page is loaded by the browser, it is scanned for certain words, such as "Microsoft" or "AOL." When the text string is found, it is given a unique underline to differentiate it from other hyperlinks; the underline is purple, and is squiggly much like the line under misspelled words in Office. When the mouse is placed over the Smart Tag link, a small square appears above or below the link with a yellow circle and the letter "i," presumably for "information." The user can then click the "i" to open a small tooltip that holds information about the Smart Tag, such as the actual link to its target, information about the link or the word highlighted, etc. It is not invasive, and is discernible from the other links. Smart Tags are disabled by default in Internet Explorer 6.00.2485, the second-most recent build of both IE and Windows XP as of the time of this writing.

In Office XP, Smart Tags are used to allow the user to insert addresses, stock quotes, see where spelling or grammar errors have been corrected, see where formulas have errors, and where objects have been pasted to more quickly and easily correct errors or return items to their previous states. One of the more important features of the Smart Tags in Office XP is the ability for them to work across applications in the Office Suite: if you enter a phone number in Word that is stored in a contact in Outlook, a Smart Tag will appear to allow you to enter any more data you wish. Smart Tags in Office XP are enabled by default, but can either not be installed or disabled.

Bottom line: it does have shady edges, but Smart Tags is just another way to extend applications and the way the web works for people. It isn't required, but may lead some people astray. Though I personally dislike them and think it's a bit like NBCi's "click any word, and get a definition of it!" idea before NBCi went under, I can understand how it will be liked by some and how it will be hated by others.