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In this video tutorial by Edgar from Tax Dome, viewers learn how to create contract templates. To begin, navigate to the settings page, select the templates tab, and then the contracts sub-tab. Users can either create a new template or copy existing ones from the library. Existing templates can be edited by clicking their names. To create a new template, click the "create template" button. The first field requires naming the template. Users can choose between "what you see is what you get" (WYSIWYG) mode for simple formatting or HTML mode for more control via code. The tutorial emphasizes the flexibility of formatting options available for contract creation.