[1] Smarthosts were originally open mail relays,[1] but most providers now require authentication from the sender, to verify that the sender is authorised[1] – for example, an ISP might run a smarthost for their paying customers only.
In an effort to reduce email spam originating from their customer's IP addresses, some internet service providers (ISPs), will not allow their customers to communicate directly with recipient mailservers via the default SMTP port number 25.
[2] Sometimes, even if an outward port 25 is not blocked, an individual or organisation's normal external IP address has a difficulty in getting SMTP mail accepted.
This could be because that IP was assigned in the past to someone who sent spam from it, or appears to be a dynamic address such as typically used for home connection.
Whatever the reason for the "poor reputation" or "blacklisting", they can choose to redirect all their email out to an external smarthost for delivery.