What does the Service Master Key protect?
Look at the encryption hierarchy found  in this TechNet article.  This document from MS shows the entire hierarchy.  You can see that the Master Key is created from the Windows DPAPI service and is used for:

-DB Master Key

-Certificates

-Symmetric Keys

-Asymmetric Keys

-TDE

-Transact SQL Encryption Functions 

-Passwords (I'm not 100% on this, but it is in the technet article and it was mentioned in the comments so I added it)

Was this for a school project or a cert exam? Do you need any more background info?