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Smart Objects earn my vote for the worst name for one of the best features in all of Photoshop. First, there is nothing all that smart about them. Unlike content-aware Fill, Color Range, Auto Align layers and a bunch of other automated features, Smart Objects have no intelligence built into them. Second, the term Objects is way too techy and I think misleading. While a Smart Object may contain foreign elements, such as an imported Illustrator graphic or a Camera Raw image and more often than not, holds pixels and pixels are not objects.
What Smart Objects are is protective containers. When you place an image into a Smart Object, the image is held from harm. You can scale, rotate and otherwise transform the layer as many times as you want without incurring incremental damage. You can apply filters and modify the settings of those filters well into the future. You can even apply CS5's new Puppet Warp command and keep the pins for later editing, plus there are the side benefits.
You can apply pixel level commands to live text and shape layers. You can link duplicates of a layer to a central definition and update all the duplicates in one fell swoop and you can apply layer effects to multiple layers at a time. Here, do this; imagine something you wish you could do to an image and then later go back and edit. If normally you can't, Smart Objects make it so you can. Here, let me show you.
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