A smear campaign serves several purposes. For one, a malignant narcissist derives great pleasure from watching her target suffer. One by one, the bystanders show their true colors. They either refuse to support the target or they join forces with the bully.
Spreading vicious rumors about someone also empowers the narcissist. Disordered personalities want to dominate people. Ruining someone's reputation allows the narcissist to feel superior to the target, as this attack is driven by insatiable envy, in the first place.
Narcissists are very concerned about their image. Trashing the target justifies an adult bully's childish actions, as she attempts to convince others you deserve what's happening. If you react in an emotional manner, it makes matters worse, because she'll use this incident to discredit you. (All along, she was hoping to trip you up this way.)
The lies serve another purpose as well. They keep people divided, so no one is able to figure out who's causing the trouble. Oftentimes, the narcissist is the last person anyone would suspect of stirring things up.
Even if the targets are not the type of openly speculate about someone's motives, the narcissist doesn't know this. She also assumes other people will also try various underhanded ploys, and gossip just as prolifically as she does, even if they have no desire to do so. In order to keep everyone confused, she tell wild stories to pit one person against the next. Of course, her juiciest tales are reserved for her current target, whom she intends to destroy.
This is why, as the relationship with a narcissist heads into rocky waters, you can pretty much bank being the object of a smear campaign.