Hi, silly question probably,
There are no silly questions.
Will I then be seeing the thousands of entries for all the various smartlists when I click on the main smartlists icon (red arrow in image below)?
Yes.
Should I just never click on the main smartlist icon (so as to never see the thousands of entries) and
It makes no difference. It doesn't matter. Just understand what it is doing.
only click on the specific smartlist I want to use?
That's what you are supposed to do.
Finally, is there a way to set up the 'view' so when I do click on the main smartlist icon it simply lists the created smartlists?
No. Smartlist (and Views) in MC don't work like Windows Explorer does in displaying directories, sub-directories, and files. It doesn't use a simple hierarchy like a file system does. It uses rules for display.
Have I simply missed some setting somewhere?
I don't know of any setting to change that behaviour. It is consistent with all other MC behaviour.
While the group headings in the left Navigator Pane look like just headings, they are in fact Views or Smartlists in themselves. In the case of View, this is done so that a broad filter can be applied at the heading level, and finer filters (rules) can be applied at each View level. For example, right click on the "Audio" heading, select "Customise View", then select "Set rule for file display...". You will see that there is a rule to select only Audio files at that heading level. i.e. "Media Type is Audio", or in expression terms, [Media Type]=[Audio]. You can actually get lower level views to ignore this broad filter by unchecking the "Use parent scheme rules for file display" setting on the lower level Views.
As you want Smartlists to be able to show any and all media types MC knows about, you don't want a high level filter at the "Smartlists" heading level, because it would restrict what could be displayed at lower levels. Smartlists don't work exactly like Views, but they have been implemented in a similar way, so when you click on that Smartlists heading all media files are displayed.
So my question is, why did you ask?
Thinking about it, the default functionality is a bit of a security/Parental Control flaw if you want to hide certain media files from Kids, or someone else. If that is the issue, then research using Users, in MC. While the default Administrator account in MC will always see all files, you can set up other users and define rules for them that will only display certain files, or alternatively not display certain files. Perhaps something like -[Genre]="Graphic Violence", so that no video with a Genre of Graphic Violence will be shown to a User of, say, kids. You can also tag who is allowed to see individual files by adding the User ID to the [User] tag for the files.
Note that I have never used the "User" functionality in MC, so I don't know how well it works. But it is there. Main Menu > View > User".
More information here:
https://wiki.jriver.com/index.php/Users. Plus search the forum.