What is the function of the SMC in an Intel Mac?
A. The SMC controls all aspects of power flow.
B. The SMC controls the speed of the hard drive.
C. The SMC manages the amount of virtual memory used.
D. The SMC manages all communication with attached peripherals.

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SMC are the initials of “System Management Controller”. SMC is a chip that is on the motherboard (also known as logic board on Mac computers) and controlling the low-level Mac computers based on Intel architecture.

The Mac computers designed with a PowerPC architecture (Power Mac G4 or G5) incorporated an older version of SMC known as PMU or “Power Management Unit”. The PMU was focused on energy management, but the current SMC include low-level management of new features in existing equipment as specified in the Apple website:

Respond to turn on/off button clikcs.
Responding to opening and closing the screen laptops
Management of battery
Control of temperature with fans
Manage the SMS (Sudden Motion Sensor)
Detecting ambient light
The keyboard backlight
The management of the status light (SIL)
Lights of the status battery
Select an external video source (rather than internal) in some iMac screens

In the photo we see the SMC chip in a Mac Pro logic board surrounded by a red circle.

By controlling SMC the low-level functions of the equipment described in the above list, this element may be used to solve problems presented in the components or features indicated as the turning on, suspension, shutdown, battery, fans, hard disk stops to detect falls, automatic brightness, backlight, video from external sources, etc..
Specifically, the most common situations to be solved by a restart of the SMC are indicated on the website of Apple:
Fans
The computer’s fans speed up quickly and remain at high speed.
The computer’s fans run at high speed although the computer is not experiencing heavy usage and is properly ventilated.

Lights
The keyboard backlight appears to behave incorrectly (on Mac computers that have this feature).
The Status Indicator Light (SIL) appears to behave incorrectly (on Mac computers that have an SIL).
Battery indicator lights, if present, appear to behave incorrectly (on portables that use non-removable batteries).
The display backlight doesn’t respond correctly to ambient light changes on Mac computers that have this feature.

Power
The computer doesn’t respond to the power button when pressed.
A portable Mac doesn’t appear to respond properly when you close or open the lid.
The computer sleeps or shuts down unexpectedly.
The battery does not appear to be charging properly.
The MagSafe power adaptor LED doesn’t appear to indicate the correct activity.

System Performance
The computer is running unusually slowly although it is not experiencing abnormally high CPU utilization.

Video
A computer that supports target display mode does not switch into or out of target display mode as expected.
A computer that supports target display mode switches into or out of target display mode at unexpected times.

In the case that the computer does not behave properly and needed a reboot of the SMC, you should make a prior action to see if it resolves the problem. If not resolved and the problem persists, reset the SMC according to the steps in Apple’s support website.
Resetting the System Management Controller (SMC)
When despite the SMC reset, the problem persists, you should check the firmware version number of SMC from your computer to see if you have an updated version of it. The firmware update could help the solve low-level or hardware level problems of your Mac.

About the SMC Firmware Updates

Check SMC firmware versions available.
Fuentes:
Macusersguide. Reseting the logic board.