To perform its many operations, your smartpen requires Livescribe Dot Paper. A notebook of this paper comes with your smartpen, and you can purchase more from the Livescribe web site.
It is standard paper with printed microdots on its surface. These dots are nearly invisible to the human eye. However, the smartpen can easily see the dots and uses them to determine which page you are writing on and the exact location on that page. The smartpen can even see the dots through the ink you write on your pages.