The most immediate cause of an electrical outlet smoking is a short circuit generating heat. This means something within the outlet is connecting negative and positive parts of the socket. As with any time an electrical outlet is smoking, this is a fire hazard. If the outlet has seen frequent use, or has old appliances plugged into it, debris from electrical plugs may have caught within the outlet. This debris might be scale from corroded plugs, or a build-up of dust or dirt. In any case, the debris is being cooked by the electricity.
Overloads can happen in two ways, and only when there is a fault within the electrical supply's circuit breaker or fuse. Normally, if too many appliances have been plugged into an electrical outlet, the sheer current being drawn through the outlet will be beyond the outlet's design parameters. Essentially, its wiring is not sufficient to contain so much electricity and will begin to smolder. The other possible cause involves a sudden power surge through an outlet that is in use. Again, the excess of electricity will cause the internal wiring of the outlet to burn. As stated, this is only possible if there is a problem with the circuit breaker or fuse, as they would normally engage in either circumstance to shut off the flow of power leading to the outlet.
There are three wires connected to the back of each electrical outlet: a negative wire, a positive wire and a ground wire. The ground wire is designed to shunt an excessive flow of electricity away from the outlet to avoid damage to the outlet. If the ground wire is not properly placed, the outlet might begin to smoke. Also, arcing might occur. This is when the positive and negative wires are not properly sheathed in plastic and they come close enough to interact with one another. Electricity will jump from the negative wire to the positive in what is known as a short circuit and will burn anything within the surrounding outlet, causing smoke.