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Creating smooth groups in Blender 3D. There are basically two guaranteed ways to edit a 3D model in such a way as to create the necessary 'mesh smoothing' or 'smooth groups' in Blender 3D when making content specifically for use in Unreal editing;
manually - by selecting individual faces or groups of faces in "Edit" mode, then using the "Split Selected" feature (keyboard shortcut - "Y")
automatically using the "Split Edge" modifier, controlled by either an angle of tolerance or edges marked as hard/soft.
The end results of both the manual and automatic process is a mesh that has smoothing formed from groups of faces that are split from their neighbours at their respective vertices creating a series or groups of faces with 'coincidental' vertices as their respective borders.
Load in to Blender 3D the UE3 to ASE script from here and select the object or objects to be exported; make sure that modifiers are applied and the mesh is triangulated - for Unreal Engine 3 based games it's not necessary to triangulate a mesh as the technology can use meshes left in 'quads' (it's not recommended though) - this is just to ensure there aren't any surprises in store due to the way the export script may interpret polygon rotation or face splits.
Once done, and depending on how you installed the script, simply export either from the "File >> Export..." menu or by pressing "Alt+P" to run it from the text editor view. On importing the mesh into Unreal using via Generic Browser (for UT3), it should appear with all the smoothing that was set up in Blender applied to the model in the Static Mesh editor or main level editor.
There is a caveat with exporting correctly mesh smoothed ASE models to Unreal and that's the Unreal Developers Kit. For some reason UDK appears to be behaving in a slightly different way to previous iterations of Unreal 3 technology, so that with regards to smoothing, ASE models exported from Blender often prove to be a little tricky to get fully working despite what may otherwise be a properly functioning and smoothed mesh in UE3 itself. At present there doesn't appear to be a specific reason for this behaviour so it means means additional tweaking may be necessary to export ASE models from Blender with functional mesh smoothing in that particular game development environment.