Sovereign Citizens are basically a cargo cult. They think that finding the right legalese will work like a magic spell. If they can find the right combination of words, they’ll get the outcome they desire.
The “only subject to contracts” thing is basically their belief that they are only bound by contracts they’ve agreed to, not things like the laws of the place they currently are. Hence doing something crazy like making a fake license plate and thinking that ‘counts’ because he’s “issuing his own license” without the need to do silly things like take a driving test to use public roads.