I think smoke only affects the direct line-of-sight of each unit, which is "only" needed for discovering a unit or getting reaction shots (it's all-or-nothing: either you see the enemy, or you don't). The original AI only shoots units that it's currently seeing. Smoke is very useful as conceilment.
Not sure about cover, but I think it does make the shot more difficult to succeed. If the shot is not successful, the random variation can make the bullet go in very random direction, completely unrelated to the exact cover. So even fragile cover (bush) is very powerful, because it will not very often get hit by the shots that aimed at the covered unit.