A smelling system to find food and water is available on launch, but is still rough. Clarity and easy-of-use are planned to be improved in patches past the initial Early Access release. This document gives an overview of the system.
Pressing the smell key causes the character to start tracking things in the environment that can replenish your needs. This could be water (blue), or food sources (orange). Food sources could be termite mounds (great for players who just spawned), AI, or other players.
Standing still for a moment while tracking allows the smell to settle, making it easier to gauge the direction you need to head in.