A validator deposit contract is a smart contract specifically used to submit the 32 ETH deposit required to initialise a validator and fully participate in Ethereum proof-of-stake consensus.
A validator is queued in the full Proof-of-Stake system once a 32 ETH deposit is made from the existing Ethereum blockchain into a validator deposit contract and the node has fully spun up. By ensuring that all initial deposits come from the Ethereum chain, Ethereum proof-of-stake is able to leverage the security pool and value of existing Ether to secure the network upon launch. Prysm nodes automatically listen for deposit logs from this contract and detect when a validator is ready for activation.
For more information and current developments, see the official Ethereum consensus specification