Microsoft Details SkyDrive’s Smart Files Feature, Prepares To Roll Out Bing-Powered OCR Search | TechCrunch

Check this Microsoft post for more details

"SkyDrive creates these smart files (the company previously called them “placeholder files”) that replicate your SkyDrive file structure on all of your machines. It won’t download all of them to every device you sync with by default, however. Instead, it will just download them when needed. This way, the company argued earlier this year, a 5.6GB folder full of images just takes up 185MB for the basic low-res thumbnails of these images. The overall design goal of smart files is to ensure that SkyDrive files take up less than 5 percent of the local disk space they would have taken without this feature.
Even though these files are stored online, though, the new Windows 8.1 search tools will still be able to search and discover all of your files, no matter whether they are stored online or locally."

Microsoft Details SkyDrive’s Smart Files Feature, Prepares To Roll Out Bing-Powered OCR Search | TechCrunch