Smith's point is that good players can fit any system (but they do have to buy into that system) while not so good players need a system so they know what to do. Yes, a team needs a system but it's for the role players, the scrub guys; a system is not intended for the good players (but doesn't mean good players cannot take advantage of systems). If there's a lineup of nothing but good players, a wise-guy coach can literally tell his players mid-game, Guys, let's junk our system and from this point on we play a completely new system. The good players will just nod their heads and go out and play that new system and still look cohesive, but not so good players cannot do that without looking very disorganized.
So to carry out his point further, the better the team the less "system" there is in place for them. The worse the team, the more that team needs a system. A system can be very big or very small, the good team's system would be small while a bad team would have a very big structured system because it literally cannot function without one. Sometimes even with a well defined, structured, and big system in place, a bad team still has trouble knowing where to go and what to do, not unlike the Kings.
The Rockets is a good team so I'm not surprised that they have a small and simple system with little to no plays.