When thrown, smoke grenades release smoke that can obscure visibility. They will also attract zombies, including those currently chasing a player, making them very useful for escaping. In other words, after throwing one, it's time to get out of the area, because any zombies that are nearby are going to converge on it.
Despite not actually dealing damage, the smoke grenade "explosion" and subsequent particles are surprisingly powerful against buildings and structures. It is quite possible for an indoor smoke grenade to indirectly kill players by causing the building to collapse, making it a powerful and dangerous tool for urban warfare.
Smoke grenades are found in all military spawns and also have a low chance to spawn in residential areas such as churches, making them easily acquirable. They also spawn in newly-spawned UAZs (1 of each colour). Smoke grenades can be found in regular grey, as well as red, green and yellow. Green smoke grenades have a much lower spawn rate. Yellow smoke grenades are only spawned in newly-spawned UAZs, making them extremely rare and valuable as they cannot be found anywhere else.