SMG stands for Sequential Manual Gearbox. it is basically a manual with no clutch. you control the shifting with a lever in the normal area, or paddles on the wheel. F1 uses it because they shift so fast so often(at least i think that is why they use it) and it can actually shift faster like .8 seconds or something like that. it's is pretty cool. check out bmwusa.com and check out the M3 section. they talk about it somewhere in there

edit: man you guys are fast. yeah correction .08 seconds on the shift. thanks rick