smart_thumbs folder is not created automatically.
/smart_thumbs folder should be created automaticaly. If it is not created, then I think it is not enough permissions to create folder on your server. Set permissions for folders to 755 ( a recommended permission for folders). Also you can choose another way to store thumbnails in Smartresizer parameters (see documentation).
Should thumbnails be created automatically when images is uploaded in media manager?
No, it is not. Thumbnails are created, when the page with images load the first time.
I think you do not read the documentation. To make possible to create thumbnails by plugin you need to set "smartresize" class for all images in an article. Or you can set the parameter "Create thumbnails for all images" to "Yes" in plugin parameters. See the documentation carefully.