Liquid smoke is an ingredient used to imitate the smoky flavor you get from cooking foods over wood smoke. It's made by condensing the smoke released by burning wood into liquid. You can find it near the bottled barbecue sauces in most grocery stores. You can make this sauce without the liquid smoke, but then it won't have any smoky flavor. If you plan to use the sauce over smoked meat, it's less important since the meat will bring its smoky flavor to the dish anyway.