How to decorate a cake so that the icing is smooth?

There are a few things to look at here:

1. shape of cake before you start icing
2. What kind of icing to use, and the kind of effect that it has visually
3. Specific techniques to use with the cake and the icing

It looks like your original question has more to do with the cake itself before icing. Good quality cake pans are the key to getting a cake that is a consistent shape, and to make sure you put enough batter in the pans to get the size and shape you want. Make sure you have straight sided pans that bake your cake evenly.

http://www.amazon.com/Wilton-Aluminum-Performance-9-Inch-Round/dp/B00006G958/ref=sr_1_12?s=kitchen&ie=UTF8&qid=1396099879&sr=1-12

This link is to an example of the kind of pans that have straight sides. I have three inch deep pans, rather than two inch like the ones in the link.

I would avoid cutting a cake down to size, as you will likely have crumbs everywhere!

On to the icing parts:

1. Are you looking to use fondant, which is a separate kind of icing layer that is rolled and placed on top of the cake? This is what usually gives a very smooth look. Fondant is a specific ingredient with its own set of skills required to get the look you want.
2. If you are not planning to use fondant, some of the result is dependent on how you prep the cake with a "crumb coat" first, before the regular icing layer, to control the amount of crumbs in the final coat of icing. There are YouTube videos, and other web links on how to do this. This step really does improve the quality of your icing.
3. Above all, with the tools you have, and the skills you need, PRACTICE will make all of this advice come together. To get the look you want, you will need to practice a lot.

I addendum to what Jennifer S. has submitted:

You can trim the cake to level out any large deformations but filling it in with buttercream is probably a better bet. Make sure to brush away any crumbs so they don't get trapped in your final layer of frosting. The crumb coat technique is very helpful especially if you chill it before applying the final layer of frosting.

One trick that I've seen used is to warm a thin, metal bench scraper in hot water, wipe it dry and lightly smooth over the buttercream. The heat helps melt the butter slightly and create a really smooth finish before applying decorative icing.

Craftsy.com provides a free instructional on what I just described.

In addition to what Jennifer S and ceelum have suggested, these are my recommendations, if using fondant as your icing:

No buttercream or ganache (for rounded corners):

1. Before fondanting, try to fill all the visible holes with little fondant and smooth over with a smoother. This makes sure that all the gaps are filled before you put your final layer of fondant.

2. Try using 2 layers of fondant to get a smoother look.

With Buttercream/crumb coat:

1. A thin layer of crumb coating with buttercream would fill all the holes and gaps in the cake and give a smooth base for your final fondant icing.

With Ganache (my personal favourite, for sharp edges):

1. Ganaching your cake would fill the gaps and you can get very very smooth edges and corners for your cake.

2. You can even leave your cake out with no real need to refrigerate as it will hold its shape, which you cannot when using buttercream.

3. It also gives more support to the cake as it firms up.

You can get recipes of ganache and ganaching tutorials on the web. Here are some as a starter.

1. Ganache recipe

2. How to ganache