The way it was explained to me: when your boss tells you to do something stupid, you have to be able to control your emotions, do what he/she tells you to do, and do it with a positive attitude. This is called “eating shit with a smile.” This would probably match the urban dictionary’s #2.
However, in my experience, it is probably closer to #1: a grin that doesn’t reflect what’s happening around the grinner.
A lady with lipstick on her teeth or toilet paper stuck to her dress. A person trips and almost falls. Someone steps in dog poop.
Anything that catches your eye and makes you smile while your trying not to laugh. You know it’s really not funny, and that makes you smile all the wider.
If you’re caught smiling, then it irritates the other person and they say “wipe that …” off your face.
Watch almost any episode of USA’s “Burn Notice” and, at some point, the Michael Westin character will give what can only be described as a shit-eating grin.
As I first encountered the term, it was more like definition 1. It’s sort of like the silent version of a conspiratorial or self-satisfied chuckle. FTR this was in National Lampoon’s magazine version of Animal House. As Bluto and D-Day pulled the test answer sheet out of the trash, Chip Diller and Neidermeyer looked on with shit-eating grins, because they’d tricked them by planting the wrong answer sheet.
That’s the way I always understood it. Someone does something sneaky and are pleased with themselves for having gotten away with it=shit eatin’ grin. When I was in high school one of my friends mom used it a lot, as in “What’s with the shit eatin’ grins? What are you two up to?”