ASP.NET Mobile Web Forms (formerly known as Microsoft Mobile Internet
Toolkit), let you build web applications viewable through browsers like
those installed on PDA's and cellphones. but it keeps being a web
application, it resides in a server so you need a connection with the server
(through Wi-Fi or cellnetwork) at all times. the advantage is that no
software has to be installed in the device.

Smart Devices App is a compact framework application that resides in the
mobile device, it requires no connection with a server (although you can
make an application who connects with the server, but in general a
connection is not "always" required), the disadvantage is that you have to
install .NET compact framework on the device, and off course your
application.

I hope this clears your doubt (hopefully my bad English didn't obscured the
concept lol).

cheers!!!

--

Juan David Gomez A.
Microsoft Certified Professional
Analista de Desarrollo - PSL S.A.
Web and Wireless Banking
Medellin - Colombia