Sooty (sometimes called smutty) is a modifier that causes black hairs to be mixed into the coat. Generally, the effect is as if someone had dumped a bucket of soot over the horse's head and back. It seems to act as a form of countershading. The dark pigment can also be distributed evenly throughout the coat or concentrated on the mane, tail, legs or other parts of the body. It may express itself as smudges, patches, striping, spots, or dappling. It can mimic primitive markings. It is believed to create dark bays, possibly dark chestnuts, as well as dark palominos and buckskins. There is debate over whether it causes liver or black chestnuts, and seal bays or browns. Sooty tends to vary seasonally and is susceptible to bleaching and the general condition of the coat caused by grooming, stabling and nutrition. It is not known at this time what causes sooty.
They have some great pics of horses with sooty too, so you can begin to get a feel for how it looks.
Unfortunately, there is no test for it yet, so there is still a lot of guesswork going on :)