I was wondering on a brake system that uses brake pads, how do I tell if this is my brake pads needing to be replaced or a bad caliper?
Almost certainly both.
If it is smoking and smells, that suggests that the brakes are being held on - does the wheel get hot as well? (feel it gently with the back of your hand, being very careful as they can get VERY hot).
If so, that means that either the caliper is sticking, or the hoses are clogged - either way the brakes are being applied, but then cannot release. This will have also caused the pads to wear significantly, so you'll need to replace them after fixing the cause of the sticking brake - remember to change the pads on the other side as well.
The brakes are the first place to check. If your car is equipped with disc breaks on the rear axle and you've driven with blocked breaks for a while, you may notice the disc changing to a blackish or blueish color from the heat. The disc may also look much more worn, having scores and scratches.
Either way: In case of an overheated disc break you have to change both the disc and the pads. Especially the disc will be deformed by the heat and unusable.
However, if your breaks are checked and fine, another less likely option can cause smoke and heat: The wheel bearing. If it is worn out, it will cause a lot of friction, generating a lot of heat. Damaged wheel bearings can usually be heard while driving. They make a clicking sound that also may get louder during curves as the particular wheel bearing will have more load on it.