Here is a short concise explanation of Covenant Theology:
Covenant theology believes that God has structured his relationship with humanity by covenants rather than strict independent dispensations. For example, in Scripture we explicitly read of various covenants functioning as the major stages in redemptive history, such as the covenant with Abraham, the giving of the law, the covenant with David, and the new covenant. These post-fall covenants are not new tests of man’s faithfulness to each new stage of revelation (as are the independent dispensations in dispensationalism), but are rather differing administrations of the single, overarching covenant of grace.
The covenant of grace is one of two (or three) fundamental covenants in covenant theology. It structures God’s post-fall relationship to mankind; pre-fall, God structured His relationship by the covenant of works. The covenant of grace is best understood in relation to the covenant of works.
The covenant of works, instituted in the Garden of Eden, was the promise that perfect obedience would be rewarded with eternal life. Adam was created sinless but with the capability of falling into sin. Had he remained faithful in the time of temptation in the Garden (the “probationary period”), he would have been made incapable of sinning and secured in an eternal and unbreakable right standing with God.
But Adam sinned and broke the covenant, and thereby subjected himself and all his descendants to the penalty for covenant-breaking, condemnation. God in His mercy therefore instituted the “covenant of grace,” which is the promise of redemption and eternal life to those who would believe in the (coming) redeemer. The requirement of perfect obedience for eternal life is not annulled by the covenant of grace, but is rather fulfilled by Christ on behalf of His people, since now that all are sinners no one can meet the condition of perfect obedience by his own performance. The covenant of grace, then, does not set aside the covenant of works but rather fulfills it.
As mentioned above, covenant theology emphasizes that there is only one covenant of grace, and that all of the various redemptive covenants that we read of in the Scripture are simply differing administrations of this one covenant. In support, it is pointed out that a covenant is in essence simply a sovereignly given promise (usually with stipulations), and since there is only one promise of salvation (namely, by grace through faith), it follows that there is therefore only one covenant of grace. All of the specific redemptive covenants we read of (the Abrahamic, Mosaic, etc.) are various and culminating expressions of the covenant of grace.
A Few Articles, Sermons, MP3s about Covenant Theology:
1. Southern Baptist Founders Conference SW 2005 Sermons – Sermons On Covenant Theology of the Founders of the SBC –
The Baptism Of Disciples Alone: A Covenantal Argument For Credobaptism Versus Paedobaptism by Fred Malone
What Is Covenant Theology? By J. Ligon Duncan
Evangelical Dictionary of Theology: Covenant Theology
Cross-Examination: The Covenant-Keeping God” By Dr. Greg Bahnsen