The smiths are a network. They can absorb other people/program and add them to the network. The Machines need to destroy the smiths but can't because when Neo "killed" the original smith he became seperated form the machines. It's like the machines want to hack the smiths network but can't because they have no connection.
When Neo met the machines he agreed to stop the smiths if the machines would stop attacking zion. He jacked into the matrix by connecting directly to the machines.
At the end of the fight Neo allowed himself to be absorbed by the smiths. He then became part of the smith network. At this point the smiths thought they had won, but they didn't realise that Neo was connected to the machines. The machines could then use Neo as a backdoor into the smith network and hack them. This is why the cables going into neo's body started glowing with so much information just before the smiths died.
Slashdot Mirror
When Neo met the machines he agreed to stop the smiths if the machines would stop attacking zion. He jacked into the matrix by connecting directly to the machines.
At the end of the fight Neo allowed himself to be absorbed by the smiths. He then became part of the smith network. At this point the smiths thought they had won, but they didn't realise that Neo was connected to the machines. The machines could then use Neo as a backdoor into the smith network and hack them. This is why the cables going into neo's body started glowing with so much information just before the smiths died.