The idea of smart contracts goes way back to 1994. Term coined by cryptographer Nick Szabo, a widely credited with laying the groundwork for bitcoin.
At core, these automated contracts work like any other computer program's if-then statements. They just happen to be doing it in a way that interacts with real-world assets. When a pre-programmed condition is triggered, the smart contract executes the corresponding contractual clause -
fastcolabs.com 
A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Smart contracts were first proposed by Nick Szabo, who coined the term, in 1994 - wikipedia
# See Also - Ricardian Contract - Eris Legal Markup (ELM) - Cryptographic Contracts - Distributed Contracts