The 22-year-old’s performances in the midfield have been among the biggest positives since Villa’s Premier League campaign resumed.
Previously, Luiz had shown only glimpses of the potential which prompted Villa to pay Manchester City £15million for his services last summer.
Smith revealed the Brazilian is now more in tune with his team-mates because he can speak their language.
Luiz passed the English exam which was a requirement of his works visa during lockdown.
Smith said: “That makes a massive difference, it certainly helped him mixing with the players.
“You’re always on the periphery if you’re not understanding what the others are saying and now he’s got a really good grasp of the language.
“The exams were an external thing, you have to do certain ones to continue with your visa. “He’s passed that now, and the lads have been having a bit of a laugh with him because he keeps saying things like: ‘The television is next to the table!’”
Luiz, who had been denied a work permit after signing for City from Vasco De Gama in 2017, went through an extensive process last summer before being given the green light to join up with Villa.
The Brazil under-21 captain did not arrive at Bodymoor Heath until just a few days before the start of the season.
Smith explained: “He needed to understand his teammates a lot more, I don’t just mean in English, I mean the type of passes they want to receive from him and where they like him to be.
“Football is about relationships on the pitch and knowing one another, strengths and weaknesses, he needed to get to know the players more.
“The language has helped that. But the break has also helped him become a fitter player.
“What gets forgotten is he walked in the door two days before the Tottenham game at the start of the season.
“There wasn’t an awful lot of pre-season Douglas had with us. Now he’s got a really good understanding of what we are about.”
Villa host Wolves on Saturday lunchtime seeking a victory to kickstart their Premier League survival bid.
A point would be enough to lift them out of the bottom three and Smith has hinted at changes for what will be his team’s fourth match in 11 days.
“That’s always part and parcel of being a manager,” he said. “You pick a team that you believe is going to win a football game.
“At the end of the day I’m the one who’s going to come face the questions after the game so I’m going to pick a team that I believe has the best chance of winning.
“Whatever that may be, there are going to have to be sacrifices with some players. That’s why it’s a squad game.
“Not all of them will agree with me but I’ll certainly give them a reason why I choose what I choose.”