"Tam bene olet!"
Translation:It smells so good!
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Context, but since we have stand alone sentences here, we don't know the context. Is the person sniffing a loaf of bread or did their crush just walk by.
Without context all 3rd person singular pronouns are correct.
Smells well would be incorrect, that would mean he/she/it is good at smelling, not that they have a nice scent. Oleo is only intransitive not transitive. In English you could use smell in both cases (emitting a scent and picking up a scent) but not in Latin. (I believe it's olefacio for the transitive translation of smell)
Unless it is an English problem and you have difficulties with knowing when to use good or well. I'll leave that explanation for someone else.