It impacts which jurisdiction's/state's law will be applied to interpret and/or enforce the contract.

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Note added at 37 мин (2006-08-01 01:17:01 GMT)
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It's an odd phrasing; you're more likely to find "state of contracting," but for some reason in English there is this trend to make everything into an adjective.

Sm:
"In addition, the parties could reasonably have expected the law of the state of contracting to apply."
http://vls.law.vill.edu/Locator/3d/Sept1998/98a1957p.txt

"in perhaps the majority of situations, be determined in accordance with the local law of the state of contracting"
http://www.kentlaw.edu/perritt/conflicts/rest188.html

"Virginia's choice of law doctrine provides that legal issues arising out of the contract itself (e.g., interpretation of the contract or the capacity of the parties to contract) will be governed by the law of the state of contracting (i.e., the state where the final act (e.g., delivery or acceptance) that makes the contract binding occurs)."
http://www.innovationavenue.com/legal-contracts-glossary.htm