Designed to obstruct firelines, use smoke grenades to give additional cover for your soldiers. Throw it inbetween your soldiers and the aliens for maximum effect.
Smoke Grenades give your soldiers the ability to create a thick cloud of sight-obscuring smoke at a moment's notice. Most aliens (and your soldiers) suffer substantial accuracy penalties when firing through smoke.
Smoke Grenades are effective in giving additional protection to your soldiers, and are useful in a pinch if you find a soldier exposed to enemy fire and cannot retreat. Any shots made through smoke will reduce the chance of the shot hitting its target. Smoke will start to heavily dissipate on the turn after its thrown, meaning you can use smoke without worrying about blocking your return fire next turn.
Be wary though of not blocking your own fire, use smoke grenades after your soldiers have fired.
Interestingly, smoke grenades can also put cornfields on fire.
You can use 2 or more smoke grenades at the same time on same location. The more you throw them, the better effect is.
Throwing a Smoke Grenade requires 50% TUs. If the soldier doesn't have a free hand, an additional 8-TU penalty is added.