It runs entirely in the browser, reads in SWF binaries, unzips them (in native JS), extracts images and embedded audio and turns them in to base64 encoded data:uris, then stitches the vector graphics back together as animated SVG. Open up the Chrome Web Inspector while the demo is running and you can see the SVG changing in real time. Smokescreen even implements its own ActionScript bytecode interpreter.
You can see demos of Smokescreen running StrongBad emails and ad banners at the site. If you are running Internet Explorer (any version), then these demos won’t work for you. In general, you’ll need the most recent versions of Firefox, Safari, Chrome or Opera to see the demos. A couple of them run on the iPad or iPhone and there is even a video of it in action for those who don’t have either device (see above).
Yep, it does work, but the examples showed that already. It's nice to see someone playing around with it. I am particularly interested to see if it can ever work on IE (before IE9) and how well larger Flash movies might work on the iPad or iPhone.