In the very first scene in The Society, we come upon Harry and Kelly making out behind the school during a play. When Allie comes to let them know that Harry is due to go onstage, she remarks that "the smell" is back, and they all hold their noses as they rush inside. Unfortunately we don't find out much more about the smell before the kids go missing (not even what it smells like).
All we know is that it smelled bad enough that the town leaders called the EPA to come and remove it. Later, Sam finds documents that reveal a man from the EPA was able to get rid of the smell for $1.5 million, but when West Ham reneged on their deal, suddenly the smell returned. The man who got rid of the smell was seen in a tense meeting with town leaders just before the fateful student field trip, and then shows up later as the bus driver who brings all the kids to their new and terrifying version of West Ham before he disappears.
Now, given all the religious themes and Easter eggs scattered throughout the series — the scripture on the wall, redemption and condemnation, one of the characters becoming a literal preacher — could the smell be . . . a portal to hell or purgatory, of some kind? A sci-fi version of a deal with the devil gone wrong? I know that sounds a little bit insane, but it could be the physical manifestation of the town's adults being "found wanting," and the punishment that they must endure because of that. No one ever describes what it smells like, but if there's so much of a murmur of sulfur next season, keep this in mind.
Also, it's important to note that the smell does not exist in New Ham. Their slates have essentially been wiped clean when they arrive there, free from the sins of their parents. As Helena notes in one episode, they now have the chance to be better than their parents, and to right previous wrongs. Given how season one ends, we wouldn't be surprised if the smell returns at some point.