Lightroom generates previews for each image that you import and it is stored in Preview.lrdata folder. The size of Previews.lrdata depends on the number of images in your catalog and the quality of the previews that you choose while importing.
Smart Previews are copies of your original images but are much smaller as they are in compressed format and these are stored in Smart Previews.lrdata
Smart Previews come into use when you do not have original copy of your images and you still want to edit the images in Lightroom.
For Example, you have your original images stored on external hard drive and due to some reason you are not able to connect that drive to your machine but you want to edit images in Lightroom.
Then, you can continue to edit images (but not export) if you created Smart Previews for them.
Here is the article that you can refer for more information :
The previews folder contains the previews Lightroom users when displaying images in the library module. The smart previews folder contains larger previews that you can use to edit when the master images are not available. If you no longer use smart previews you could safely delete that folder. If you delete the previews folder, Lightroom will begin building it again because it depends on those previews in the library module. You can control the size of the somewhat by choosing the size previews that you want to use, and how long to retain them. I don't use the library module that much. So I have Lightroom generate smaller previews. And I choose to have them deleted after 30 days.
Thank you both. Both answers were somewhat correct. It won't let me mark them both correct.