You can make standard photo albums to collect photos of certain subjects, or to temporarily group photos you might want to turn into a project like a slideshow or a photo book. Unlike events, which contain photos taken during a specific period of time, albums can contain photos taken anytime or anywhere. You can place the same photo into several different albums and organize albums in different ways.
Smart Albums are special photo albums that iPhoto updates for you automatically, using criteria you specify. For example, you can create a Smart Album that collects all the photos you have rated with three or more stars, or a Smart Album that groups all the photos taken with a particular camera.