Contrast in an image is determined by the difference between light and dark tones in a scene. If there is not enough contrast a picture may appear too gray or dull.
By adjusting contrast you can lift an image considerably and raise its appeal.
As contrast range in nature is almost infinite not even the human eye can perceive them all. A typical observer would be able to discern up to 36 distinct levels of gray or intensity variations. When color is added however, our eyes can discern thousands of color shades and intensities.
Sensors in digital cameras cannot represent all these possible variations and neither can printers or other output media, so often a compromise has to be made between how light and dark tones are represented in an image. If the contrast range is larger than what the camera's CCD can capture, you will have to take into account what the most important part in an image is. When taking an exposure reading you can decide to meter for the highlights or for the shadows. When metering for the highlights, the darker tones will be underexposed and lose their shadow detail, while if metering for the shadows, lighter tones will be overexposed and become completely white without any detail. If contrast in a scene is low, this can be adjusted later in you digital darkroom by looking at the histogram of the image and dragging the white and black point closer together to raise contrast.