Smooth has always used edges. If it had ever used distance, it'd need some way to define how far. Here's 3.6.53, before:
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After smooth:
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The vertices not connected with an edge don't get smoothed.
Smooth
uses the mesh topology (the edges). If it used distance, it would be easy to grab weight from unrelated vertices. Eg, think of a bent arm, or a single image that is a torso and arms
you wouldn't want the arms to get weight from the torso just because they are nearby. Auto
is also very smart about assigning weights, it doesn't get fooled with a torso/arms image.