He is light gray and has a light green leaf on his head. He has mahogany brown pupils and does not smell pleasant, hence his name.
Smelly originates when Squidward falls off his bike and gets stuck in the cement, falls into sewage, and gets a leaf on his head. This makes him look like an animal, hence why SpongeBob and Patrick have no idea that he is indeed Squidward.
SpongeBob and Patrick "rescue" Smelly and Patrick takes him in to live with him. Eventually, the police capture Smelly and put him in the Bikini Bottom Zoo. SpongeBob and Patrick, yet again, rescue Smelly from the zoo.
At the end of the episode, Smelly is freed to roam with his own kind. Smelly also gets the chance to listen to Kelpy G play. Shortly after he arrives to the place where his own kind thrive, his identity, which is Squidward, is revealed when the various nature elements covering his body fall off, and the episode ends.
He is enemies with Gary the Snail. Gary is, apparently, the only one who knows his true identity.