Content types are one of the new features in Windows SharePoint Services 3.0. It is same as "Template Object" in Microsoft Content Management Server 2002 (MCMS 2002).
It allows you to store multiple types of data in the same list or document library by data encapsulation. It encapsulates the data scheme and makes it independent of SharePoint list or library.
For examples, you can store contracts of both building and vehicle in the same document library or list in SharePoint although the data schema are different for each one.
For building contract, the columns or data will be - Tenant Name, Building No, Contract Details, etc. and for vehicle contract - Tenant Name, Vehicle Registration No, Tenant License No, Contract Details, etc.
All the two type above documents will reside in the same list or library by defining two content types in WSS 3.0 / MOSS 2007.