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In the tutorial, the instructor demonstrates how to create a new contract template by going to the contract templates section and clicking on the "new contract template" button. The user is prompted to give the template a title and add the necessary content, including stipulations and language. Variables can also be used to personalize the contract for the client. The instructor shows how to insert variables, such as photographer name and client name, and demonstrates how to use the date variable to input the current date into the contract.