The hazy gray cloud that floats in the air when something burns is smoke. Smoke is made up of tiny carbon particles. If you get lost in the woods, you can use the smoke from your campfire to guide you back to your tent — or you can just use the GPS on your smartphone.
The saying "where there's smoke there's fire” means that there's always a reason for a rumor. The saying is literally true as well—when you set something on fire, it will begin to smoke. When something "goes up in smoke," it's either destroyed by fire or ruined as though it's been burned: "My dreams of being a magician went up in smoke after that rabbit trick went awry."