Office XP SmartTags come in 2 flavours; XML and .dll. The two types can coexist on the same machine. I'm also fairly sure you have to specify a directory for all active SmartTags to live in for a given machine.
Then, as you enter info into an Office doc (Word, Excel etc), the machine checks input against the words/phrases targetted by the tags in the specified directory, and if one occurs, you get the underlining.
MS browsers from IE5.0 on (I think. Could be IE5.5) pick up from Windows where said directory is, and use it also, hence IE6.0 uses them.
If you hover your mouse over the tag, a menu appears, allowing you to perform whatever actions are defined in the tag.
The usage I am most familiar with is in conjuction with an accounts package. When you are writing a report on, say your companies debtors, as a Word doc you can link the tags to the live accounts database. As you write the name of a company that owes you money, the tag checks it against the table in the accounts that records customer names. If it finds a match, the name is underlined.
Hovering over the name gives a choice of actions, which in this case may be a report on the companies account details, current balance, order history etc. These are defined in the tag, and the info comes straight from the live accounts data.
When the report is done, you e-mail it to the FD, who opens it in Word, picks a company whose appearance on the list concerns him, gets the dropdown, and selects the option to display their account history in Excel. An Excel s/sheet opens, with the most up-to-date possible info, as it comes staright from the live accounts d/base.
He can then pick up that info, and compile his report to the MD on remedial action.
XML tags can come from anywhere, I think most .dll ones come from MS (and I believe the controversial IE version was .dll flavour, the idea being that when you log on, your browser automatically, and invisibly queried MS.com to d/load the most recent version of the .dll, and upload gathered surfing info)
Does that make things as clear as mud?