Sources

• Underbarrel Smoke Grenade Launcher.
• Light Assault’s Smoke Grenade.
• Hunter Crossbow‘s Smoke Bolts.
• Ground Vehicles’ Smoke Screen.

Mechanics

• Smoke takes a few second to fully deploy.
• Smoke puffs go through walls and always travel North.
• Enemies can be spotted through smoke, and their nameplates and triangles are visible through smoke. 
• Muzzle flashes, Light Assault’s Jet Pack flames, green healing glow, Heavy Assaults’ overshields and other player-based particle effects are very visible through smoke.
• Smoke looks different on different “Graphics Quality” settings:
  • High Quality
  • Medium Quality
  • Low Quality – appears to suffer from a weird bug, which makes Smoke nearly useless against players who use that setting. Another interesting point is that using “Low” Graphics Quality with non-Low Particle Quality will make smoke puffs jet black.
• HS/NV Scope, Infravision Implant, vehicle weapons’ Night Vision Optics allow to see through smoke.
• Vehicle weapons’ Threat Detection Optics do not allow to see through smoke.
• Smoke is stronger during the night, since it darkens what’s already dark.
• Smoke is weaker during the day, since it increases contrast, and can in fact make you easier to see instead.

Application

• Smoke can be used to obscure movements of allied infantry, or blind enemies in a static position. 
• Smoke is especially effective against low-mobility units, such as Heavy Assaults, MAXes and MANA turrets.
• Smoke’s usefulness varies greatly depending on where you deploy it. You may help your enemies or harm your allies by deploying smoke in a wrong place, so be careful with it. 
• A lot of time you can see unorganized players indecisively stand around, wait for someone to take charge to rush enemy positions, but as soon as you throw some smoke in there, they all rush in together, as if they “grew a pair” (c) Wrel.

PS2 combat is not CQC. There are a few CQC areas, but once you let enemies in those areas – you already lost the base.

PS2 combat is controlled by courtyards, fields, and holding the walls of a base. The idea is to not let enemies inside your base if at all possible, and to push them out if they get in. Fail to do that and you lose.

-Chewy102

Smoke can be used to help you and your allies cross those courtyards and fields, and overwhelm the enemy in close quarters combat. 

Equipment Combinations

• HS/NV scope or Infravision implant, so you can see and shoot through smoke.
• Suppressor or Flash Suppressor, so the enemy doesn’t see your muzzle flash through smoke.
• Counter-Intelligence implant, so you know if you are spotted, and visible to the enemy through smoke. 
• Target Focus implant, so you can identify enemies with hip fire crosshair through smoke.

When you combine all of that, you can deploy a cloud of smoke on top of enemy positions, flank them, and have a shooting gallery from relative safety. 

This is hard to do consistently, because often you will be just spotted and shot by someone not covered with smoke. Enemies will still see your tracers, and they can trace them back to you, and spot you. But you may get an extra kill or two that you wouldn’t have gotten without smoke. 

Problems

There are a lot of ways to deploy smoke, and even more ways you could tactically benefit from it. But the huge problem with smoke is its inconsistency: how effective it is will depend on a million factors, most of which are outside your control, so relying on smoke is always a dice roll. To paraphrase /u/CloaknDagger505‘s elegant expression, smoke has an above 0% chance of being useful.