There's a lot to know about how these things work. A good source is Pelletheads.com:
The smoke setting is basically the way the controller manages the feeding of pellets into the firebox when it's trying to hold a specific temperature. The fact that yours is holding at 160* is something that will change based on ambient temperature, wind, pellets, anything. When you set it to 225* or 250*, you're still smoking. When the temp drops below whatever you've set it for, it feeds pellets until the temp rises to the setting. Then it does whatever it's doing when in smoke mode (generating smoke) until the temp drops again. At higher temps, the pellets burn without giving off much smoke, so it's basically just a wood-fired oven, which is not a bad thing. A ribeye cooked at a wood-fired 325* is a wonderful thing.
How do you tell the pellet smokers at the BBQ competiton? They're the ones who are well rested. Set it and enjoy!
Clean it between uses, though. It's not a grill. Grills can self-clean 'cause they burn at 500*+. Smokers don't.