The Round Corner tool will create a smooth arc where two lines intersect. This works best if the lines are approximately 90 degrees to each other.
To begin, select two lines that connect at the same point.
The program will create two new points, one on each selected line, that offset the corner. It will create an arc between these points.
If the arc is going the wrong way, as it is in the image below, select the Other Side button.
Use the X and Y Radius values to smooth the corner. You can use the sliders or enter a value. With the Lock box checked, changes to the X Radius will also be reflected in the Y Radius.
If you want more control over the shape, deselect the Lock box and adjust the X and Y individually.