Smith returns after being a free agent ever since he wasn't tendered a contract offer back in March. The Lions decided to not bring Smith back after he had his season ended early for the second year in a row because of an injury. At the end of 2009, Smith tore his ACL, and last year a thumb injury resulted in him being put on injured reserve.
Although Smith's production wasn't very good last season, that likely had more to do with his injury problems than anything. The hope for the Lions is that a healthy Smith can get back to his rookie season form (he rushed for 976 yards and eight touchdowns in 2008) and be a solid contributor at a position in need of depth.
Just as we don't know whose spot on the roster went to Davis, it's unclear who is being released to make room for Smith. My guess is Eldra Buckleyhas been let go, but there's no indication right now.