Smart Playlists in iTunes are lists that can automatically update, you can read in Apple's site
A playlist to which you assign rules (for example, songs by certain artists); when you add a song to your library that matches the criteria, iTunes automatically adds the song to the Smart Playlist.
You can learn there also how to create new lists.
I will show you now, the Smart Playlists I use the most. I call it "Good Mix".
Here are the rules:
Add to the list the songs that comply with these rules: If the song has 5 starts and have not been played in the last two days or If the song has 4 starts and have not been played in the last five days or If the song has three starts and have not been played in the last ten days or If the song has two starts and have not been played in the last fifteen days
That way I listen more frequently to my favorite songs, now all you have to do is rate all your collection, or the songs you want to be included in this list.
Here is a screenshot of the Smart playlist rules: