Any voltage source has an impedance, otherwise you would be able to get an unlimited amount of current from a source. So for example there is a limit to the ammount of current you can get from a battery. It is like there is a built in resistance limiting the current. The value of this built in resistance is known as the impedance. In the case of a battery it is in the order of a few ohms.

For signal sources this impedance is much higher, for example suppose you were to get a voltage from the wiper of a pot, the impedance of that voltage would depend on the overall resistance or value of the pot. For an arduino you get less noise when this is around 10K or smaller, if you were to use a 1M pot that would be a high impedance.

The actual value of capacitor to use depends on how much smoothing you want and on your source impedance. However start with a 0.1uF.