Direct contact refers to a bullet directly striking and destroying one of the major nerve centers, including the thoracic and cervical vertebrae, the brain or the autonomic plexus, regardless of velocity, this will result in instant death.

Indirect contact refers to the effects of a high velocity bullet imparting its energy, creating a hydrostatic shock wave. In terminal ballistics, the terms hydraulic shock and hydrostatic shock both refer to kinetic energy transferred as shock waves through flesh, however, each term describes different results.

Hydraulic shock is the civil engineers term also known as water hammer but in terminal ballistics context refers to the pressure of accelerated fluid particles that create the temporary wound channel.

Hydrostatic shock transfer refers to the effect when shock waves travel through flesh to distant nerve centers, disrupting their ability to emit electrical impulses.

Direct contact is the only reliable method to immediately stop a threat with a handgun. Bullets expand so the probability of hitting one of the major nerve centers is higher.

Source: http://www.ballisticstudies.com/Knowledgebase/Effective+Game+Killing.html