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[edit: Jonathan Perkin answred this question much better that I could].

SmartOS is an illumos distribution tailored for running containers and KVM guests. It usually PXE-boots, but it can boot from things like USB sticks too. It's a "live" distribution in the sense that that there is (almost) no local state and no local configuration. It just boots and takes care of the containers or KVM guests living on the ZFS filesystems on that particular node.

SmartOS is trivial to get running, you just dd an image to an USB stick. You can create your own images to run, or you can import the many images provided by Joyent or the community. The tooling is very nice and mature.

SDC is additional technology that uses SmartOS (among other things) that you want to use when you want to run not a single node, but clusters of many nodes.