It generally means the terms of the contract have been fully satisfied by both sides, or both sides have agreed that the contract has been satisfied. For example if I agreed to mow your lawn for �10, if I then mow your lawn and you are happy with the result and you pay me �10 then the contract has been discharged. Similarly if you contract me to mow your lawn for �10 and then change your mind, you might offer me �5 as compensation and if I accepted it the contract would then also be discharged.