First of all, never use \cr in tabular, but always \\.
Now to the problem.
A tabular, by default is as high as deep. Height is the vertical amount by which a box sticks above the baseline, depth the same, but below the baseline.
\noindent\begin{tabular}...\end{tabular}<blank line> makes a one line paragraph, that is packaged in a box put on the main vertical list.
\smash doesn't start a paragraph and, indeed, you don't get an indent because the box is placed directly in the vertical list.
Between boxes, TeX puts interline glue so that baselines are \baselineskip apart, unless this would make boxes overlap, based on the depth of the top box and the height of the bottom box. If
\baselineskip-<depth of top box>-<height of bottom box> < \lineskiplimit
TeX inserts \lineskip glue instead.
The bottom box has zero height, because it was smashed.
The computation makes TeX think that no overlap happens
Result: overlap.
This is more evident if you add two rows to the tabular and "show" the boxes. To understand the effect, you need to remember that a tabular extends below the baseline of the last row, because each row has a \strut.
\documentclass{article}
\fboxrule=0.1pt % hair rule
\fboxsep=-\fboxrule % don't add to the box dimensions
\newcommand{\showbaseline}{\makebox[0pt][l]{\leaders\hrule\hskip3cm}}
\begin{document}
\noindent\showbaseline
\fbox{\begin{tabular}{@{}l}
One\\
Two
\end{tabular}}
\smash{\showbaseline\fbox{Three}}
\noindent\showbaseline
\fbox{\begin{tabular}{@{}l}
One\\
Two\\
Three\\
Four
\end{tabular}}
\smash{\showbaseline\fbox{Five}}
\end{document}
In the first example you see that the baselines are exactly 12pt apart, while in the second the bottom of the tabular is 1pt from the second baseline because TeX, in this case, inserted the \lineskip glue.

\smashbypasses the\parlogic. In both cases, there is no\parindent. Put a\strutbefore either\smashand the indent comes back. Strange. – Steven B. Segletes Sep 27 '13 at 00:14\parskipeither. – Ernest A Sep 27 '13 at 00:30\smashworkings end with\box0after a series of assignments which never change the mode (of course, restricted horizontal mode is entered when setting\box0, but this is irrelevant). So if\smashis issued in vertical mode, it doesn't cause TeX to switch to horizontal mode. The only box related commands that force horizontal mode are\unhboxand\unhcopy. – egreg Sep 27 '13 at 08:51