What it means
A contract is formed when one party makes a definite offer and the other accepts it on the same terms. An offer must be clear and intended to be acted on, not just an invitation to negotiate (an advertisement or shop display is usually only an 'invitation to treat'). Acceptance must match the offer exactly and be communicated to the offeror. If the other side changes the terms, that is a counter-offer, which rejects the original. Together with consideration and an intention to be legally bound, offer and acceptance create a binding agreement.
How it's used
The builder emailed a quote of $12,000 to renovate the bathroom, and the homeowner replied 'Yes, let's proceed' — that offer and acceptance formed a contract.