I got stuck on tutorial

[Fonte Boa]

But I'd like to ask about that smoothing tool. What is it for actually? A smoothed preview gives me a roughly estimated view of my model in a game maybe? Or let's say that I would like to model a real car from a reference image - does it mean I need to model while having that smoothing turned on?

I cant say much about game preview, because i dont work in this area.

The fact is: in Wings, subdivision (Body|Smooth) is a destructive operation, ie, if you performance it and continue to work, you wont be able to undo it.
So Smoothed Preview (Shift+TAB) is the way to visualize your work subdivided without have to really subdivide it.