Tell her you know and you aren't going to cover for her, and if it pisses you off you'll complain about it. I wouldn't go out of my way to tell my parents but equally I wouldn't play dumb. If she's old enough to smoke she's old enough to tell them she smokes. As for talking to her, don't bother, if she doesn't know the dangers the only explanation is she's illiterate, its all over the packets.
I always find this hide it from your parents attitude pathetic, grow up. If you want to smoke, smoke, if you want to drink, drink. Don't hide it like 12 year old with a nuts mag. If your aren't old enough to tell your parents you can and will make your own decisions, you aren't mature enough to make them.