'SMART Dialing' is not that useful if u have more than 100 contacts.. So its not much use for most ppl.

The way it works is you need to know the contact number, so when you dial each digit, the 'smartdialing' feature will filter out all numbers and would list all numbers matching the digits you entered. If you have like 100 contacts, its hard to remember the number to dial, so most ppl just dial via Contacts screen or even simpler M$ VoiceCommand.