Smoothing improves the quality of a depth image captured by the camera by reducing distortions / breaks in the image caused by 'noise', and smoothing out jagged edges. The documentation page for the SmoothingLevelType function says:
SMOOTHING_DISABLED: No smoothing.
SMOOTHING_MEDIUM: Median smoothing.
SMOOTHING_HIGH: Heavy smoothing.
The RealSense SDK has a Smoother Utility.
I would think that the smoothing would be performed by the SDK software on the PC, not the camera. So if that is the case, anything that involves additional processing has the potential to cause lag. The effect it would have on FPS would likely depend on the capabilities of your particular PC's hardware. The better the hardware, the less noticeable slowdown there would likely be.