A neutral third party is someone not related to either party and who does not benefit from the contract. Ideally a witness will observe the relevant party or parties signing the document and then the witness will sign the document as proof that they witnessed the parties signing. The witness is not usually required to know or understand all of the contents of the document.

Note also that depending on your jurisdiction some documents such as a Will can have clearly regulated requirements regarding the number of witnesses and the nature of the relationship between the parties and the witness. Some jurisdictions disallow witnesses that are mentioned in your will, either as beneficiary or executor/executrix. The witnesses must be of legal age in your jurisdiction and they must be mentally capable of managing their property and making their own decisions. You should contact a local lawyer or review local statutes if you have any questions on how to execute your document.