In general, exercise will increase your health and your body's operating efficiency. Things like stroke volume, lung efficiency and capacity, and red blood cell efficiency including oxygen and co2 delivery efficiency. See the Diagram below.
Not only does blood efficiency increase but so does red blood cell production and the exchange of nutrients/wastes at the capillaries in the liver, kidneys, brain and the lungs. Potentially, your cognitive functions will be more efficient as well or, in short, you can become smarter (arguable of course, depending on how you define intelligence).
As your blood operates better, you will get rid of toxins/waste from all areas of your body thereby lowering your chances of cancer and increasing your energy and the overall health of all your other cells, even non-skeletal muscles. This effect is very noticeable to people who have had a very sedentary lifestyle or who have been poisoning themselves with smoking. In short, exercising will make you feel like a different person.
More about anatomy and exercise.
You must exercise caution, however, (hey that's pretty punny) exercise can undo some damange to the lungs but not most, so QUIT SMOKING! ;) You also need to be aware of low oxygen symptoms such as dizziness, lightheadedness, etc and heed these warning signs or you may pass-out on the treadmill for example and become injured. Also, you're at greater risk of heart disease so take it easy and slowly work your way up. Don't push your self too hard and consult your doctor.
More articles about smoking and exercise: HealthyLiving LiveStrong FitnessBlender