To get a better understanding of how these work, let's look under the hood of iTunes' Recently Added playlist by selecting it, going to the File menu and choosing Edit Smart Playlist. You can also get this option by right-clicking on the playlist you want to edit.
Here we can see the rules this playlist uses. A Smart Playlist can include as many rules as you like, but this one only uses two rules: it looks at the "date added" information of your music collection and pulls any media added in the last 2 weeks; and it goes through and excludes anything that might be a podcast.
This playlist also has the Live Updating box checked, which means that the playlist is updated immediately any time content is added or deleted from iTunes.