This tool operates only on lines - All lines within the selection
will be considered for smoothing and there must be one side missing
i.e. the lines must not describe a closed ploygon:

The tool applies bezier curves using the current lines as control
points:

The circles are control points that can be moved using the mouse to
change the final shape. Note that the outer box is removed so
that the control points can be seen easily. Reselecting the
smoothline will re-display the outer box.

The break lines tool reverses the operation.
In Menu-->Extra Tools --> Break lines,