In the context of Starcraft (and it is different in other games), smurfing referred to utilizing an account with a lower ranking (usually ICCUP) than is accurate for you as a player, to beat up on lesser players.
Since Starcraft 2 has a built in ELO style system, this would mean buying a new account (or destroying your own ranking) and losing all your matches to be placed in a league below your skill level (or using one that is already in such a position).
Since ELO style ranking systems require a sample size of multiple games to make accurate prediction of the skill level, players can trick the system into believing they possess a lower skill level.
Smurfing is not unique to ELO style rankings either. Many tournaments are held for lower skilled players and by misrepresening themselves, highly skilled players can enter these tournaments. This often times constitutes fraud or cheating, but may be by design. For example, the Team Liquid Attack pits a professional player against a series of lesser players. Often times they will intentionally mix in another professional player and present him as a lesser player for comedic value. This is by design (and fun to watch).
Usually, however, smurfing is tantamount to taking candy from a baby.
Best Answer
Generally this refers to taking various items and/or resources and combining them to make gear, furniture or any other goods used throughout the game or gaming community.
Sometimes higher quality stuff may be crafted either by luck or by the quality of what was put into crafting something in the first place.
The context can vary depending on the game for example:
Minecraft is about crafting various resources and building things http://www.minecraftwiki.net/wiki/Crafting
Also, the great Diablo 3 has released a video on their take on crafting:
Ultimately, games attempt to get you into crafting to either advance in the game, create a form of sometimes highly profitable revenue in massive multiplayer online games or to enhance the strength or survivability of your character.