Mash methods, various efficiencies and water chemistry impact are discussed in great detail in some of the pinned topics at the top of this forum. They also get a lot of attention and even more detail on other forums.
One of the easiest to use resources is "How to Brew" by John Palmer.
The short answer is that mash efficiency is really broken into two parts; Conversion and Sparge. In this thread, we're discussing conversion efficiency, or, how to get proteins broken down and the starches converted into sugar. Generally a normal water to grain ratio is 1.25 quart/lb (2.5 liter/Kg), sometimes a little thicker, other times a little thinner.
As far as BeerSmith is concerned, the working measurement is "Brewhouse Efficiency." For BeerSmith, this is the percentage of total sugars that make it into the fermenter vs. the total amount possible from the grain. This efficiency measurement accounts for losses due to equipment and process as well as simply leaving sugar in the grain.