SkyDrive “smart file” is a relatively simple concept that has the primary goal of reducing disk space. An interesting paradox has occurred within the last couple of years. While people’s need for disk space has increased, the available disk space on devices has decreased. This is due to a variety of reasons but primarily demands for solid state drives (SSDs) has increased due to their better performance, impact on battery life, form factor etc. However they much more expensive than mechanical hard drives, and therefore we tend to see SSDs with more limited capacity in devices because they are cheaper.
With SkyDrive smart file, the full file will not be synced locally as it currently is. Instead a thumbnail of the file with relevant metadata will be synched. This can reduce the disk space used by SkyDrive up to 80%. You can always choose to make a file always available offline. Although smart files are a fraction of their original size, they behave identically to any other file. Larry Larsen on Channel 9 talk about this feature