With Smart Search enabled, Google says you can search for text and images within PDF files. That means that if you're looking for a restaurant menu that you know you've saved on your phone, you should be able to find it by typing the restaurant name if it's included in the document. Files is also testing the ability to search for photos based on the objects that appear in them, as well as the locations where they were taken. Google Photos has had this capability for a long time, but it's nice to see it hopefully coming to Files as well.
Currently, Google Files only allows you to search for documents based on their file names, which isn't particularly useful when most of the file names on your phone are just a mix of random letters and numbers.
It seems that the update is not available to everyone, but the people at Android Police They were able to try it out themselves and found that they still couldn't search for images based on location, nor could they tag and find people within images like you can do in Google Photos.
In a support page on the Google website, the company says Smart Search runs in the background to scan your documents. It notes that “scanning is done on your device” so your information doesn't leave you. To check if you have the feature, update the Files app and look for Smart Search in the app settings. Google notes that it may take “a few days” until on-device scanning is available. If you still don't see it, you'll have to put up with searching for documents by file name a little longer, but it doesn't hurt to keep checking for updates.