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Collections in Lightroom Classic enable you to group photos together beyond the folder structure on your hard drive. When you add a photo to a collection, you're not creating a copy of the original image. You're simply adding a reference to the image to the collection, so that you can quickly access photos for a particular project, for example.
If you are producing a calendar featuring favorite photos from various trips to Italy, for example, you could create a collection called "Italy Calendar" and add photos to that collection from the various folders containing images from your trips to Italy.
The difference between a regular collection and a smart collection comes down to how the photos are added to the collection.
With a regular collection you manually add photos to the collection, such as by dragging and dropping photos into the collection. This approach makes sense for scenarios where you are hand-selecting the specific photos you want to include in the collection.
With a smart collection you specify rules based on metadata values, and then images matching the criteria you defined are automatically added to the smart collection. For example, you could create a smart collection based on photos that have a five-star rating and that have "Italy" assigned as a keyword. All photos that have both a five-star rating and "Italy" as a keyword would automatically be included in the smart collection. If you reduced the star rating or removed the "Italy" keyword from an image, it would automatically be removed from that smart collection.
Since smart collections are easier to manage in terms of having photos added or removed automatically, I would favor a smart collection when you can define clear metadata criteria for which images should be included. That could even include clever tricks like using a keyword value of "Italy Calendar" as a rule for a smart collection.
The one key drawback of smart collections you'll want to keep in mind is that you can't enable cloud synchronization for smart collections. That synchronization is only supported for regular collections.
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