From the Super Mario Wiki
The Smoke Ball being used.
The Smoke Ball is an item in Super Smash Bros. Brawl that returns in Super Smash Bros. for Nintendo 3DS / Wii U. However, it doesn't do much damage. Once thrown, it will emit colorful smoke into the air, which can be very distracting to the players. It is also hard to see what moves are being used, and it is difficult to see what's going on. Players can pick up the item, and take it, or throw it somewhere else. It can also be thrown onto players, in a similar fashion to a Gooey Bomb.
Trophy information from Super Smash Bros. Brawl
||Wii Super Smash Bros. Brawl
||An item that activates when tossed and fills the area with clouds of obscuring smoke. The smoke slowly changes color over time, from white to yellow, orange, red, purple, and finally blue before restarting the cycle. The smoke hangs around quite a while before dispersing. You can pick up an active smoke ball and hurl it again. Be careful not to lose track of yourself, though.