The difference of those two is that on freelancing you can work on the comfort of your own home with flexible time schedule while on a contract job you usually work on a fixed schedule while being confined to an office.
Freelancing is working for individual(s) without being committed to the employer on a long term basis. They are different from contract jobs because at freelancing, geographical barriers are not a problem. Your working schedule is really up to you; you can work part time or full time. Freelancing is really a great alternative if an office job is not an option for you, whatever reasons you may have. Best of all, you get to work with different kinds of individuals from all over the world.
However, freelancing is without its difficulties. Unlike a conventional job, payments are sometimes not guaranteed at freelance jobs. Also, while you are just starting to be a freelancer, the earnings are too small compared to a regular job. Lastly, impressing an employer online is more difficult than impressing him/her personally; this affects your chances to nail a job being a freelancer.
I hope that this info helps. For more info, visit http://en.wikipedia.org/wiki/Freelancer. Also visit http://www.odesk.com to know more about freelancing and start being a freelancer yourself.
(This is what I submitted to Facebook on their search for a beta tester. Here is a link so you too can take part in their search - http://www.facebook.com/?ref=logo#!/product_application/)
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