The Smoke Monster Protects The Island
Through some unknown means, the island was given or created itself a protector to guard it from outsiders and other possible threats. This protector became popularly known as the smoke monster. The smoke monster's origin is still shrouded in mystery. However, we do know the smoke monster's first appearance was when it appeared to the man in black (as his mother) and convinced him to leave the island.
Through some unknown event, the smoke monster was trapped for some time, until it was accidentally released by Jacob when he threw his dead brother down the secret cavern. This freed the smoke monster from the cavern and it began to protect the island again, keeping outsiders from finding or entering the island. However, when individuals did find the island, it protected the island by taking the form of dead people to confuse those trespassing.
At some point, the smoke monster entered into a "game" with Jacob to determine the fate of the island.
The Monster represents the past
The monster is a metaphor for people's troubled pasts. The more morally questionable actions a person has committed in the past the larger the monster will be for them. When you run from these past events, they will eventually catch up to you. But if you face your problems or the Monster and come to terms with them, they seem less daunting and scary. It is not necessarily the monsters purpose to make you face your past, it simply derives it's power through these terms.
Mr Eko stares the monster down and it slowly shrinks and then runs off. When he is drinking from the stream, the monster sneaks up on him, but he quickly turns and faces it and it slips away. The monster had never been seen so large as when it attacked Keamy and his men, who had committed many immoral acts as mercenaries.
It manifests as whole, dead bodies
The Monster can manifest itself as people whose dead bodies remained whole. That's why the Others burn their dead and cast them out to sea. It successfully took the form of Alex, even though Richard buried her. It usually takes the form of those who died on the Island, which explains why Emily Linus's appearance surprised Richard, who's earlier only seen it appear as his own wife.
It is electromagnetism
The Monster is the manifestation of the high electromagnetic fields the island produces. High electromagnetic fields are known to cause hallucinations and "fear cages" that can enclose on peoples psyches. DHARMA has been studying electromagnetism and possibly made the connection that the Monster is made up high electromagnetic fields, so they built the fence around the barracks to protect themselves.
The spectral analysis of the sound made by the sonic barrier, one of the frequency bands corresponds to 972 Hz, which is the average resonant frequency of the human skull. The barrier could be a means of not allowing the Monster to "get into the mind" or "skull" of its target.
The leader summons the monster
Only the Island's leader can summon the Monster.
It drags people to EM pockets
The Smoke Monster dragged people into Cerberus Vents (which all lead to a pocket of electromagnetic energy, like all the wells on the Island do) because it was trying to use them to "unplug" the energy pockets there. Similar to what he wanted to do at the Source, which was the strongest of all the EM pockets. Since Smokey had no way to access the Source back then it had to try to make do with the "weaker" pockets to accomplish its goal of leaving the Island. Didn't work, though.
The reference "a mouse does not rely on just one hole" that is on the blast door map (assuming that 'Cerberus' is the smoke monster) is referring to the Cerberus Vents, or CV I-CV IV. These include the hole that the monster almost dragged Locke into.
There Are Two Monsters/It appears differently to different people
As referenced when Locke and Eko first encounter the monster, the monster seems to appear as light to those two. They describe it as "beautiful" and "a great light" yet obviously it appears as dark smoke to everyone else. So perhaps this is Jacob as an unMonster scouting candidates on 815 or Locke and Eko are somehow inherently different. Q: If it is the latter case, what is it about Locke and Eko that makes the monster appear differently to them?
COMMENTARY S01 DISC1 E04: Terry O'Q. (when talking about the first smoke monster encounter) "-I was told to imagine it was the most beautiful thing I had ever seen."
A: Locke and Eko both came to the Island without fear, either losing it when they arrived (Locke) or conquering it before they arrived through horrific life experiences (Eko). This lack of instinctual fear was potentially problematic for the plans of the smoke monster. Smoke Monster knew that both men saw the Island as a place of renewal, beauty, and miracles, so it appears as something wonderful once to each man to gain confidence and assurances, to show the Island is a place of magic. The Smoke Monster was running the con from the start, it knows how to manifest itself to others so-as to get what it wants.