In this context (IIRC) smart means “if this zip contains a single folder with contents, directly extract that folder, but if the zip contains files and/or folders, extract all that to a new folder named the same as the zip file”.
Some people zip folders while some people zip the files in a folder. Smart extraction just handles both automatically.
Does this normally work? They removed support for location based reminders over a year ago, so that might be why it’s struggling so much. https://arstechnica.com/gadgets/2022/06/the-google-assistant-is-losing-location-reminders-one-of-its-best-features/
Though last time I tried assistant responded “I’m sorry I can’t set location based reminders anymore”. Either they’ve removed that warning, or this image is over a year old…