A Smart Playlist is a feature of iTunes software (as of version 3) which allows the user to create a playlist based on different criteria selected by the user. It can be created as a one-off, unchangeable list, or can be made to change continuously ("live updating"). It appears as a purple-and-white-striped document icon with a black gear in it.
To create a new Smart Playlist, choose New Smart Playlist... from the File menu, or alternatively click (with the option key held down) on the icon of a toothed gear (usually a plus sign if the option key is not down).
As of iTunes 4.5, the user also has an option to include, or exclude, a playlist, as a parameter of a Smart Playlist.
To modify a Smart Playlist, select it in the iTunes Sources pane and press command-I, or choose Get Info from the File menu.