Agent Smith is a violent, single-minded and grumpy artificial intelligence created by the System to maintain order. What he is most known for is his replicating ability - sticking his hand into a human body attached to the System and copying himself onto that body. During this process, you can see thick titaninum liquid spewing out of the body - it's as if you could visibly see every cell being replicated and transformed into a piece of Agent Smith. Agent Smith is a virus. He is a like a cancerous cell - having the ability to eat away and replace anyone's cells except for the Ghosts and Neo. With equal contempt for humans and the System - later on, he unplugs himself. He hates humans because he sees them as weak, trapped, hopeless and in a sense, lifeless for they are fated by the System. But he also hates the System because his powers are limited by the rules of the System - thus, he could only stand there stupidly when Neo flies away - doing his superman thing. He is also forced to maintain order - kill off other viruses and troublemakers. But he does not care about order - he cares about only one thing - the elimination of Neo. His pride and ego rests upon that.
But unplugging himself was not as easy as it sounds. As a product of the System, like an unborn baby, he is not ready. What he is missing is a soul. Essentially, a human being has a soul and an physical exterior (or shell), but a soul was never needed in an artificial intelligence, and therefore, did not exist. Once humans were created, the System chained them down - soul and all, and then created artificial intellgience which was a part copy of human beings merely to control humans and to keep the system in stability. Unlike human beings, artificial intelligence cannot survive unplugged.
What exactly did Agent Smith do?
Agent Smith went to see the Oracle. She was a nice lady - but was neither good or bad. She would help either side. The Oracle gives a cookie to Agent Smith, and lets Agent Smith explain what he wants. He wants to unplug himself because he hates the System and he wants to gain more power (his powers were limited and bounded by the System) to kill Neo. Thinking that this might be interesting - she gave him the secret on obtaining a soul: follow the Yellow Brick road to see the Wizard.
So, Agent Smith skips away in the Land of Oz and meets up with Dorothy, the Scare Crow, the Tin Man and the Lion. They all go off together, battling the evil witch and singing to trolls. Finally, after pouring water all over the evil witch and burning her, Agent Smith was granted a soul, the Tin Man was granted a heart, the Scare Crow was granted a brain, and the Lion was granted courage by doing such a good deeds to the Land of Oz. After that, Smith wakes up, unplugged himself and starts tearing down walls to find Neo to kill.
But that's the story on how he found a soul.