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A Smart Font is a .OTF font that has alternate characters and ligatures.  A ligature is where two or more graphemes or letters are joined as a single glyph.  It is common to see AE or OE as a ligature (Æ or Œ ).  When you use a regular font, you have to type a code to create a ligature.  For AE you must type alt + 0198 in Windows.  But when you use a .OTF Smart Font, as soon as you type AE it will automatically be replaced with Æ if that was one of the characters in the Smart Font.