tyapples, that simply connects to your shared library, i.e. if you are on the same WiFi network as your iTunes library, then you will simply connect to that. If you go out of WiFi range or disconnect from the network then you will no longer have access to your Smart Playlists.
I recently purchased an iTunes Match subscription as I got tired of iTunes/iOS updates wiping my iPhone's music library (10,000 songs, converted to 128kbps as they are synced, takes approx. 48hrs continuously syncing), but that's a topic for another day!
I was shocked to see that the majority of my Smart Playlists had not synced to my iPhone/iPad using iTunes Match, and after several days of fiddling (and searching the web, scrawling through threads like this), I have isolated the reason why they have not appeared, and managed to sort it.
It was simply because one of the rules in the Smart Playlists was "Playlist is Music" or "Media Kind is Music".
I don't know why this was a problem, but removing that from all my Smart Playlists made them appear on my iDevices immediately!
I wish iTunes Match came with an instruction manual, could have saved me a lot of hassle.. But hopefully this advice/input helps someone else in the same boat! 🙂