We see Spike smoke in Buffy the Vampire Slayer on many occasions
We learn in the final Episode of Season 1 of Buffy that vampires can't breathe. Does that mean that Spike can't absorb the nicotine in the cigarette and get a nicotine buzz?
Spike appears to enjoy smoking on more than just a psychological level, at least according to the show script for Fool for Love:
[He strikes a white-tip match off the pool table, lights the cigarette, savoring the first puff, and grins at Buffy through a cloud of exhaled smoke.] - Buffy: Fool for Love
Beyond that, there's not a lot of extra background (and nothing within the show) that specifically explain why he smokes and what he gets from it.
I would think that alveoli in his lungs could still absorb nicotine, even if his physiology didn't "require" them to absorb oxygen. Someone versed in the medical sciences could probably provide a more detailed answer.