Contact is used for applying spells via a weapon attack or standing inside of a magic hazard.
I wanted to make some touch-range spells for my mod but I ultimately held off, because as far as I can tell there's four ways to pull it off:
1) Edit the game's base scripts on weapon attack events. The game will not apply on weapon-attack effects to unarmed fists and there's no easy way to make it do so; the guy with the main unarmed damage mod edited the actual source scripts for the game, I am not comfortable with this solution.
2) Create a new weapon that uses unarmed animation and modeling. The spell would summon this new weapon type right into your hand, it'd have an enchantment with the spell you want, and the enchantment would - on striking the target - not only cast its effect but remove the 'weapon' from your hand. Messy, but doable, and probably the best option IMO. I'm reserving this for when I come up with a spell idea I feel is really suited to it.
3) Do something ridiculously complicated and frail via scripting.4) El Cheapo Way: Cast a spell with a type of 'Target Actor' with a range of like, 3, unequip what's in your hands, have it trigger an unarmed attack animation at the same time, then re-equip what was in your hands..