THIS HALACHA IS A WORK IN PROGRESS. MUCH OF THE CONTENT MAY CHANGE AS WE ADD, EDIT AND CLARIFY THE CONTENT.
There are some basic requirements for the Brochos on smell:
1. The smell must have an actual physical source. This excludes cases where the smell has been absorbed into something else (e.g. clothing or a room).
2. One only makes a Bracha if the item is there to emit a good smell, and not if it is there to overpower a non-pleasant odor. For example, one does not make a Bracha on fragrances placed on the beds of the dead, fragrances placed in restrooms, fragrant soaps used to clean, fragrant detergents, and fragrant deodorants. If one buys any type of fragrance to remove a bad smell, there is no Bracha said. Even others who smell that same fragrance (bought to remove an odor), do not say a Bracha.
If one smokes [as in burning fragrances, not as in smoking a cigar] fragrances, one only makes a Bracha if his/her intention is to benefit from the smell; and not when the goal is to infuse the fragrance in utensils or clothing (unless he has in mind to benefit at the time of smoking). As mentioned before, one does not make a Bracha on such utensils or clothing due to reason #1.
3. One only makes a Bracha on smelling things which are permitted for benefit (מותר בהנאה). This excludes fragrances of idolatry, or fragrances of a woman that is forbidden to him. These are cases where one is not allowed to smell, and all the more so cannot make a Bracha.
If such forbidden items got mixed up, or there is a doubt (ספק) if it is such an item, one should go after the majority.
4. One only makes a Bracha if the smell is strong and "important" (חשוב), but if not, no Bracha is said. Therefore: if the smell is weak (e.g. cut grass, and similar, that have little smell) no Bracha is required.
An unnatural (handmade) smell is subject to a dispute. Therefore, one should not make a Bracha in such cases.
One does not need to hold the item in his/her hand while making the Bracha. Rather, it is sufficient if the item is in front of him.
Source: Sefer Sharei Haberacha (starting at page 427)