Smart Key Co-ordinates the activities of security features of the car mainly Engine Immobilizer & Central Locking Sensor security system. There is a control unit device in the vehicle which will be communicating with the Key Fob in your pocket through the air using radio waves. It will be transmitting a secret code and it works if that matches only. This system also has the ability to know whether you are inside or outside the car. Engine can only be started when you are inside the car. They use code hopping for secure communication but still hacking it is possible. A Back up Key is provided and space to insert it would be there at door and near steering incase key fob fails. Programming a Smart Key system is heard to be expensive than buying a new key fob.
In the Keyless Entry System, transmission of secret happens between Remote and Control Unit only when remote is pressed. However in Smart Key it happens often. Factory fitted smart key system is present in Nissan Micra. Mercedes is the first company to have introduced in passenger cars. Different manufacturers call it by different names. You can install it in your car from a car accessory shop. Ask around whether such kits are available or not.