A smart contract is an executable program stored on the Ethereum blockchain. The execution of a smart contract is processed by miners, and requires a payment of ether in order to fund the processing of the contract. One or more parties can create or fund a smart contract, which will execute according to the inputs it receives.
A smart contract is like a legal contract in that it specifies an agreement for the handling of a given situation which may arise in the future. For example, an insurance contract specifies the payout to the insured in the event of an accident. Smart contracts differ from traditional legal contracts in that their execution is not subject to the interpretation of human institutions.
In other words, smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.
Some of the potential areas that can make use of smart contracts in the future are, but not limited to, governance, management, notary services and real estate.