Smoke Grenade is a highly tactical ability and can be deployed in many situations. The 20 Defense granted is identical to the difference between open ground and low cover, or the difference between low and high cover. It should be noted that the Defense bonus of a Smoke Grenade stacks with cover, but the bonuses from multiple Smoke Grenades do not stack.
Uses for smoke include:
Covering allies following unexpected encounters.
Covering an ally forced to move through an Overwatched area.
Which also applies to the reaction shots triggered after moving while Suppressed – however it doesn't undo the Suppression in the sense of the pre-move accuracy penalty. This will be most felt by Snipers who cannot usually move then fire in the same turn.
Diverting attention from a low-HP ally, since the AI will typically prioritize more accurate shots.
Providing an area for a MEC to charge into for close range, since their melee or Flamethrower cannot miss and they cannot otherwise gain additional Defense via terrain or props.
Reducing the threat posed by a dangerous enemy (e.g. Sectopod) by increasing the squad's Defense in combination with using Suppression to decrease the enemy's Aim.
Providing a significant statistical advantage when multiple squadmates and enemies are trading shots.
Instead, upon promotion to Sergeant, a Support may select the Smoke and Mirrors ability which does increase the number of available Smoke Grenade uses per mission (one additional use in Enemy Unknown and two additional in Enemy Within).
Upon promotion to Captain, a Support is granted the ability option between Dense Smoke and Combat Drugs; both present an upgrade to the Smoke Grenade's effect.
Beware that Smoke Grenades do not discriminate between friend and foe, in the sense that enemies within the smoke cloud will also receive the applicable bonuses. This is rarely an issue, but should be taken into account especially when facing melee enemies that are likely to enter the cloud as they approach the player's soldiers. Likewise, in the rare situations where it is beneficial, note that any Smoke Grenades thrown by EXALT forces will also benefit the player's troops that enter the cloud (most commonly XCOM Assault soldiers advancing into close range flanking positions).
Smoke Grenades do not nullify the critical chance bonus that penalizes a soldier that is exposed (either Flanked or outside of cover). Thus, for soldiers who are neither Hardened MECs nor allotted the Resilience rank perk, it is highly effective when used to further improve a soldier's defense when they are already in cover, but it should not be universally considered a substitute for obtaining actual cover.