A smooth stone was, for years, just a useless treasure drop like a table leg or a dented ring. Then, similar to a table leg and a dented ring, it was given a use besides tricking new players into rubbing them to "enhance their experience gain."
Smooth stones can be prepared with an aish'vrak potion and turned into a runestone. Putting a smooth stone on a small sand elemental from the Wavedancer will, if successful, turn the stone into a fancy schmancy rock or crystal or other stone that can then be turned into a pretty runestone.
With a demand for smooth stones now greatly exceeding the amount of stones dropped by the treasure system, alternate ways to get the stones were introduced into the game. In addition to finding them when searching a creature that normally drops treasure, they can be purchased from the back room of the General Store in Wehnimer's Landing or found for free in a hunting area outside of Ta'Illistim.