A 10 day contract is a where a Free Agent signs a player contract which lasts ten days (or three games, whichever comes later). A team may sign a player to two 10-day contracts in one season (they may or may not be consecutive). After the second 10-day contract, the team can only retain the player by signing him for the remainder of the season. A team can't have more 10-day contracts than they have players on their Inactive List. Ten-day contracts are available to be used starting January 5 (or the first business day thereafter) each season. Typically, if the the team sees improvement in the player they will usually resign them; if not, they are waived.
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