Sfumato is a painting technique in which the colors blend softly into each other, rather than objects or shapes having sharp outlines or hard edges.
The Italian word sfumato, means shaded off 1 and comes from the Italian word fumo, which means "smoke"2. No surprises then that it's been referred to as a smoky effect.Leonardo da Vinci liked to use sfumato, the Mona Lisa probably being the most-quoted example.
1. Collins English Dictionary, Third Edition.
2. The Oxford Companion to Western Art, edited by Hugh Brigstocke, Oxford University Press 2001.