Smoking INSIDE the car while trying to jump

[imagesinthewind]

We decided to rearrange the car in the drive, put the parts car up front, etc.
79 doesn't start at all, battery is deader than dead. We decided to go ahead and try to jump just for giggles and the strangest thing happened.
We have the cables on the battery of the 79 and we let the battery charge a bit while we clear some snow so we can move cars.
We try to start it but nothing, some lights but nothing even close to turing over. No clicks, it's like the starter is broken. That dead.
Then I smell something like an electrical short. Tom opens the door to the car and there is smoke and the smell is really strong!
We decided to stop trying to jump it, I water down the engine (just in case) and we end up pushing it up the drive with the Yukon and an old tire.

So, what was the smoke? Why would the INSIDE of the car smoke while trying to jump it???????

Also, what wire would have a fuse on it AND be placed on the pos of the battery? The 79 has (had, came off) and the 81 has this. What is it? I've got pics if needed.
Thanks!