This tells Smarty how to handle PHP code embedded in the tempalates. There are four possible settings, default being SMARTY_PHP_PASSTHRU. Note that this does NOT affect php code within {php}{/php} tags in the template.
SMARTY_PHP_PASSTHRU - Smarty echos tags as-is.
SMARTY_PHP_QUOTE - Smarty quotes the tags as html entities.
SMARTY_PHP_REMOVE - Smarty removes the tags from the templates.
SMARTY_PHP_ALLOW - Smarty will execute the tags as PHP code.
NOTE: Embedding PHP code into templates is highly discouraged. Use custom functions or modifiers instead.