Check out this article: http://www.cakecentral.com/article10-How-To-Create-Faux-Fondant-The-Paper-Towel-Method----Viva.html
I just use Viva to smooth my cakes.
Why Viva? Or will any plain papertowel do the trick?
Viva towels do not have any lines or dots on them. Thus, the icing is smooth. Here is what you do. Ice a cake until the cake has just become crusty enough to lay the viva towel down and use a cake spatula or fondant tools to smooth the icing. Lift the towel and look at the icing and it will be smooth. You may need to repeat a few times. Make sure you don't make the icing too crusty before putting the towel on.
Just as a side note, if you do use a towel with a design quilted in it, it leaves kind of a cool effect. I used Brawny on my present and ghost cakes (in my photos). Viva for smooth definately but if you want something a little different venture out with something textured. 
Rambo, you're right, that does leave an interesting effect. I may have to try that out. Thanks!
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