The Smudge tool let's you smear stuff around (when Spacing is low) or softly blend colors (when Spacing is high). Adjust the Strength to control how much paint is carried around by the Smudge.
The Orient setting determines if the brush shape changes orientation while you stroke. Turn it on to have the shape follow your movement or turn it off to have the shape always the same.
The Paint setting allows you to lay down some paint at the beginning of your smudge and carry it along during. It's quite like finger painting and the Strength setting determines how much paint is applied.