Why to sign a contract?
When a music label and an artiste or a band decide to start working together, either on project basis or for long term, doesn't matter, anyway they have to put all their agreement on black and while with signatures from both side! This is a must in this industry as most of the time the future situation is unknown and one or both party might change their mind(s) after a while based on the the upcoming results of their collaboration, so there is a must that everything be on paper to prevent any future problems!
Why to join a label?
There are a lot of talented people out there, dreaming of being a recording artiste. Some with their own music knowledge and access to enough equipments prefer to persuade their dream on their own, some prefer to keep independent and and just hire a seasonal music producer and promoter and get the job done. And then, there are the smarter ones, whom have a better understanding of how this industry work and try to join a production company.
The first 2 group are not doing anything wrong, but these days, even with all the social media and easy access to potential fans, still the old school way of going under an established label is working better, because of simple reason, those guys in labels had done this for many years and have enough experience to save you from wasting so much energy, time and money!