Need help with understanding this 3-way wiring setup
Yup, you have a switch loop in a 3-way switch configuration.  The wiring is
Supply ------ Light -------- Switch1 ====== Switch 2

The wires from Supply to Light are always-hot and neutral.
The wires from Light to Switch1 are always-hot and switched-hot.
The wires from Switch1 to Switch2 are always-hot and 2 travelers.

Your smart switch needs always-hot, switched-hot and neutral.  Those are not located at any switch location.
It won't be possible to install a smart switch in the normal way.  You'll need a smart switch module that sits in the lamp box and serves as the master, and smart-switch remotes at the physical switch locations.