I wouldn't say it's polite. It's very informal. You could use this with a good friend or close relative who visits you often. But if it is a new neighbor, someone you don't know well, or, say, your boss, it would be more appropriate and polite to apologize and say something like, "I'm so sorry about the smell" or "I hope you'll excuse the smell." To just say, "Don't mind the smell" doesn't even apologize for the problem. It just acknowledges it.

yes, it is polite. The owner of the home knows there is an odor and is concerned you may find it offensive. They say, "don't mind the smell," or even "sorry about the smell," and often tell you what it is, "we just painted," "the baby just got changed," "my son forgot to take out the trash," etc. They are trying to be considerate.

I just saw the reply about your English name. :) Glad you're enjoying that series of books. Best wishes with your language learning!

yes, it is polite. The owner of the home knows there is an odor and is concerned you may find it offensive. They say, "don't mind the smell," or even "sorry about the smell," and often tell you what it is, "we just painted," "the baby just got changed," "my son forgot to take out the trash," etc. They are trying to be considerate.