ROS Session Manager (SM) is a special environment subsystem. SMSS.EXE is the first off kernel process run by the system process. Its role is managing any other environment subsystem, like W32, PSX, OS2 etc.
SM is called by a subsystem server at initialization time to say it wants to manage a given subsystem ID (it is the same which compilers put in the subsystem field in PE image files). That action is successful only if no previous subsystem registered itself with the SM for the same ID. This means that, on the same box, can not run two or more W32 environment servers at the same time.
SM itself registers itself with the SM for the subsystem ID=1 (native NT processes). This prevents viruses and other frauds from running fake SMs.