Ethereum is capable of executing many types of smart contracts, which are programs that autonomously manage and carry out predefined terms involving value transfer. Smart contracts are called "smart" because they can independently enforce the conditions of an agreement without requiring intermediaries. The terms of these contracts are written in code and made available for execution on blockchain platforms, like Ethereum.
Just as normal contracts can be used for a wide variety of purposes, like forming ventures or conditionally delivering goods and services, smart contracts can be flexibly constructed to achieve a wide range of purposes. Oftentimes, a group of Smart Contracts are used to create fully fledged Applications.
For instance, an exchange may be constructed such that each trading pair is a smart contract, where a certain amount of one asset is required as a deposit to then release a certain amount of another asset. While this is a simplified example of a marketplace application, the structure of combining many smart contracts together has allowed for reliable trading applications to be created, without traditional intermediaries, and with users being able to audit the code underlying the interactions.