Smart Objects are layers that store one or more Photoshop layers' content or an Illustrator file's content in such a way that the Smart Object remembers the contents' original characteristics, even if you transform a Smart Object layer. This makes it possible for you to make nondestructive edits to the Smart Object layer. For example, you can scale a Smart Object down and back up to its original size with no loss in resolution or detail. When you scale a regular layer down, you lose some of its resolution, which is okay if you leave it at the smaller size, but it can result in a loss of quality if you scale it back up.
To edit a Smart Object's contents, such as the text on a type layer, double-click the Smart Object. This opens a separate file in which you can see the Smart Object contents and where you can edit them. Then save and close the file. When you do that, the Smart Object layer in Photoshop is updated. This separate Smart Object file is really contained in the same Photoshop file, behind the scenes. It is not a separate file you can see in your computer's operating system.
To create a Smart Object, do one of the following:
Open a file with the FileOpen As Smart Object command.
Place a file with the FilePlace command.
Copy and paste a file from Illustrator. ...