Yes, this feature can be enabled and disabled from the Advanced Features menu in Settings. It is on by default and currently only works for English.
Pulse SMS will suggest relevant Smart Replies within any conversation. If it has suggestions, they will appear directly above the area where you type your messages. Not all conversations will display Smart Replies. They change with each conversation and take the conversation context into account.
You can also set up Smart Replies to be shown in your notifications. To have the notifications suggest Smart Replies, head to the Settings > Notification Actions and set one of your action buttons to Suggest Smart Reply.
Smart Replies are generated directly on the device and are not computed on any remote server. They never leave your device and are not used outside of that local device in any way.