Contact! is a special ability for military units, making the attacked unit always retaliate against any attacks within its range. The retaliation is also triggered by attacks hidden units with Stealth as well. Any attack from outside its range will not trigger a retaliation; however, if a unit has longer range than the Contact unit, this does not automatically guarantee that you will not receive retaliation, as the attack must be outside the range of the Contact unit in order to avoid it.
For melee light units that have the Contact ability, whilst it appears to make no difference at all (as melee attacks will always trigger a retaliation anyway), the difference will be that they can retaliate infinitely as long as the attacks are melee range, as opposed to only 1 retaliation per turn.