Yes it's true, your Mac is even more brilliant than you ever imagined! Smart Folders contain items which are based on search criteria that you set in the preferences of that particular folder! In real time, these folders automatically add or remove your documents from your Mac, unlike traditional folders where you would manually need to put documents in certain folders.
Want some more clarification? Check out this official definition from the Mac OS X website:

"Smart Folders contain documents grouped together based on search criteria that you define instead of their physical location. Computer file systems are rigid: a file can only be in one folder inside a hierarchy of other folders on your disk. Smart Folders fundamentally change the way you organize your stuff because now a file can literally be in two folders (or many) at once without duplicating or moving the underlying file."