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In this video tutorial on starting freelancing, the host explains the difference between contracts and proposals. Contracts are legal documents that detail the terms of a deal, including obligations and legalities. In contrast, proposals are more focused on selling the idea of the deal, outlining what it includes and the costs involved. Proposals serve to persuade the client to agree to the project and may also include the terms of payment, making them similar to contracts in some cases. The speaker advises viewers to consider this information as freelance advice rather than legal counsel.