Basic explanation of Smart Contracts

Smart contracts are very similar to contracts in real life. Key difference is the smart contracts are fully digital. A smart contract is a small computer program and it is stored in a blockchain. For example you decided to hire someone from freelancer.com to work on your project. You will create a project on freelancer and people who want to work on it start to bid. So after you choose someone, you will put money on the freelancer to be released after someone you hired would reach some goal or milestone. The freelancer is a third party that is between you and someone who works on your project. You both need to trust freelancer.com to handle money correctly. You want your employee to get money or you want to get refund if your employee failed to achieve your goal. Smart contracts can give similar control, but without third-party like freelancer.com.
A smart contract can be programmed to keep money until certain milestone is reached. You can transfer money into the smart contract. In a case milestone is reached your money would be funded to your employee, but in a case of a fail to reach the milestone, then your money would be refunded to you. Since smart contracts are stored in a blockchain nobody controls money. Blockchain makes smart contracts to be immutable and distributed. This means once a smart contract is created, nobody can change it. The distribution part requires the output of your contract to be validated by everyone on the network. So nobody can just release the money because other people on the network will not validate it. Currently the biggest player in smart contracts is Ethereum blockchain. You can program smart contracts in programming language Solidity on Ethereum blockchain. This language was specially designed for programming smart contracts.