An API contract is a document that outlines an API's behavior and usage guidelines. It helps ensure consistency and predictability in interactions with the API, promotes shared understanding, and assists in streamlining processes for both internal and external users. API contracts can take various forms such as documents, formal specifications, or code examples, often following established standards like OpenAPI, gRPC, GraphQL, AsyncAPI, or Blueprint. They should be simple, well-documented, and thoroughly tested against the contract before release. Practices like specifying expected behavior, API versioning, documenting data formats, limitations, and restrictions are crucial in designing effective API contracts.