Sharepoint - Content Type vs Managed Metadata

Term sets from Managed Meta data is one of the types of meta data you can add to your content types, just like a choice list or a date field.

With managed meta data you can define hierarchies of highly managed meta data terms(taxonomies) or you can use the term set as a folksonomy or social tagging where the terms typically are managed by the contributors that can add new terms to the list.

An example of a taxonomy could be that you wanted to tag data with what office in your company it belongs:

DC
  Washington office
  New York office
California
  Los Angeles
Michigan
  Detroit

Term sets are well integrated into SharePoint, so you can use the tags to navigate large lists using the hierarchy in the term sets. Search also gives you the possibility of using the meta data for facetted search. Content Query web parts can use the tag sets for filtering. Document routing feature can use taxonomies for routing rules etc...

Read this blog post from Microsoft Enterprise Content Management team to get a better understanding of how Managed meta data works and how it integrates into the platform.

I fully agree with Anders above. However I think that Content Types and Managed Metadata are to be used in conjunction to create a taxonomy that works for your users.

You are right that you could use either to create the concept of a Contract for users but here are some of the considerations I would take into account to decided between CT/MM

1. For usability Content Types have the advantage of being more visible - the can be selected from the new menu in lists for example
2. You can attach templates to Content Types, you cannot however attach different templates based on metadata options on the same Content Type
3. Information Management Policies ( such as arcading, Auditing and Retention) are attached to a Content Type - you cannot choose an IMP based on metadata attached to a content type
4. Content Type Syndication in SP2010 gives you a really easy mechanism to control the entire life cycle of Content Types really easily

Cheers