The stuff inside expensive electric things that you can smell if you accidentally zorch them on a dry winter day. Once you let it out, that thing will never work again. Example: I touched my Palm Pilot after shuffling across the rug, and I think I let out the magic smoke because now it doesn't work.
MAGIC SMOKE
Meaning of MAGIC SMOKE in English
Slang English vocab. Английский сленговый словарь. 2012