So I read that SmartApps run in the cloud, but there was a bit of vague text about whether this is always the case (in the developer pages). So, are there situations where the SmartApps execute on the hub? For example, suppose I have an automatic door unlock app. What happens if the hub loses internet connectivity? Do all my features just stop working? That just sounds like the wrong design.
The current SmartThings system is entirely dependent on the cloud (and your Smart Hub’s internet connectivity). It’s not as bad a situation as it sounds unless you know you have very flaky internet. SmartThings Cloud has periodic processing issues, but some of these are isolated.
Hub V2 (or Hub V2.0 or Hub Version 2, etc… so a Search 
) has been developed and is under extensive internal testing, but no release date is set. I’d put odds on a few more weeks, but it could be months.
Hub V2 will store and execute most SmartApp / Event processing locally, though I describe it as a “local cache”: The SmartThings Cloud is still where all the SmartApps will officially reside, and where all events eventually need to be pushed in order to be used by the mobile / phone Apps.
Find a long Hub V2 thread and you’ll have plenty of reading with good details.