Both achieve the same goal, which is to filter out the unwanted high-frequency noise and improve our signal-to-noise ratio. Hardware smoothing achieves it through analog filtering of the signal in the oscilloscope hardware, whereas averaging achieves the same goal through software/DSP methods. We prefer to use averaging and ignore smoothing. We like to use about 128 or more averages in the scope; according to the classic DSP book by Oppenheim and Schafer, every time you increase the averaging for a digital signal 2 times; you increase your dynamic range by 3dB. 128 averages give you additional 21dB of dynamic range without making you wait for long averaging process to complete.