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In Baseball, what does it mean when a player is "designated for assignment"?

The Red Sox’s John Smoltz was “designated for assignment” after Thursday night’s beatdown by the Yankees. I’ve heard this term so many times, and yet I don’t know what it actually means. Is it just another way of saying “sent to the minors”? Is it a trade of some sort? Or is it a nice way of saying “fired”?

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