Hi Jeremy
Although my starting point is LR, I always launch SFX this way, via PS/SO. The flexibility is a big advantage.
Starting from LR, just open an image in Photoshop and convert the Background layer to a smart object (via the right click). If you want to edit the image in Photoshop before going to SFX, eg adding adjustment layers or cloning, you can select multiple layers and convert them into a single smart object.
Still in PS, launch SFX, do whatever you want, and save. Whereas normally you would expect SFX to add a pixel layer, running SFX on the smart object applies its edits as a "smart filter" - a sub item in the Layers panel that you can hide or show, even mask. To change the SFX edits, you just double click the smart filter and SFX launches again with all your control points and other settings available. Fundamentally, that's it.
The method was slightly fancier in the paragraph you quoted. Instead of just opening in PS, from LR you use Edit > Open as Smart Object in Photoshop. The advantage here is that the SO remains raw and you can change its ACR adjustments by double clicking it. There's no difference for the SFX part of the workflow.
The smart object/filter technique works with all filters, not just SFX. It's also a neat way to copy SFX effects between images - you drag the smart filter from a SO in one image and drop it on a SO in the other.
John