I was in Venice in summer 2013. It didn't smell bad, even though it was hot. We asked some locals (who we were staying with) about the legendary smell.
Historically, raw sewage was simply dumped into the canals and (eventually) washed out to sea. This had been the status quo for centuries, with some improvement over the years but there was still lots of old plumbing. With increasing population and increasing tourism, the smell problem got steadily worse as the years went by. It was particularly bad on hot summer days.
A while ago (maybe 10-20 years ago), the city recognised the smell as a problem and started a programme to clean it up. They did a few key things:
- Cleaned out the sludge and gunk from the canals, scrubbing and dredging
- Required that new plumbing comply with strict new standards
- Started a plumbing remediation effort to fix all the old plumbing
Our hosts had to replace their former home plumbing system with a triple septic tank system a few years earlier. The overall result has been a dramatic improvement in the smell throughout the city.
So, my experience (on hot summer days) is that Venice smells just fine now. But it wasn't always this way.