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In this video tutorial by Edgar from TaxDome, viewers learn how to create contract templates. To begin, navigate to the settings page, then the templates tab, and the contracts sub-tab. Users can either create a new template or copy existing ones from the template library. If templates are already available, they can be edited by clicking on their names. By selecting the "create template" button, users can start from scratch. The first step involves naming the template. There are two formatting options: "what you see is what you get" (WYSIWYG), which offers basic text formatting tools, and HTML mode, which allows for more complex formatting through HTML code.