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How do I use smart objects in Photoshop Elements? There is an option to Enable/Disable them in settings, but no actual way to turn a layer into a smart object in the layers menu?
Photoshop Elements only support smart layers. You can disable them because many old users are not at ease with them, especially when dragging photos from the photobin to the editing space.
To recover some ability to use smart objects, you can download the very affordable Elements+ add-on which features dozens of useful scripts.
See the section about smart objects.