Ethereum is the second most successful cryptocurrency, and for good reason - it successfully implemented the world’s first Smart Contracts on the blockchain, innovating upon the success of Bitcoin.
Smart Contracts are best described as automated contracts that are coded to interact or interface in a specific way with inputs and outputs. Vending machines would be a simple analogy to describe how they work; they take your inserted coins, calculate the amount of change to be returned, and dispense your soda. Smart contracts execute contracts in a similar fashion; they take an input, such as a cryptocurrency, and conduct the intended behaviour as codified in the contract.
Complex systems can be built with smart contracts; for instance, digital “pawn shops” that provide loans for a given collateral, or even entire applications such as games or digital identity software.