It is a set of tools which are used to install and maintain software installations, updates etc. It needs them in a compatible format to be able to do this.
You can compare it with for example rpm, yum, dselect, ... which you might know from Linux distributions.
It keeps a database/list of installed software, including a history with timestamp, version numbers, all files a fileset brings etc.

There is 4 different terms of software in AIX that is being handled with the above:

LPP - Licensed Program Product; a complete product with all Packages and Filesets that are needed.
Package - A collection of Filesets.
Filesets - The smallest unit which is an archive that contains files. They usually have the file name extension ".bff" and are of archive type "backup file format" which is afaik similar to tar-archives.
Bundles - These are lists of themed software which comes consist of LPPs, Packages and Filesets.

The commands besides SMIT which are usually being used are:

Maybe start with lslpp -L| more exploring your installed software. You can also try a lslpp -w /usr/bin/ls to see which fileset contains ls.
With smitty install you get a shortcut to the software installation and maintenance menus, you can explore - but be careful not to crash something