SMO stands for SQL Management Objects (and is technically called "Shared" Management Objecs by at least one installer).
The SMO is a collection of .NET objects for managing SQL Server. It was introduced in SQL Server 2005 as a replaement for the prior effort, DMO (Database Management Objects).
The SMO is installed when you install any version of SQL Server Management Studio (including the free SQL Express version) or as a separate download via the SQL Server Fature Pack.
Resource: Diagram of class hierarchy: http://msdn.microsoft.com/en-us/library/ms162209.aspx MSDN