From Sue Chastain,
Your Guide to Graphics Software.
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Photoshop CS2 introduces a new type of layer called a Smart Object layer. Smart Objects are a little like symbols in Illustrator. Smart objects can consist of pixel-based content or vector-based content, like an Illustrator drawing placed in a Photoshop document. With smart objects, you can make multiple copies of a single object and all copies will be updated when one of the copies is edited — but you can still apply layer styles and adjustment layers to the individual smart objects without affecting all copies, which provides for a lot of flexibility. Pixel-based smart objects also remember their original size and can be transformed multiple times without loss.

In the screen shot above you can see the new thumbnail icon for smart object layers. Note that in the layers palette you can see there are three layers with blue hearts and three layers with yellow hearts. On the next page, you'll see the actual image which this layers palette represents, and you'll see that each smart object is actually a different color. That's because four of the six smart object layers also have a color overlay layer style applied to them.