What it is:
Covenant Theology is not a new understanding of Scripture; in fact, it is that system which God, in His divine providence, established to communicate His sacred Word to His chosen people throughout what we know as “redemptive history.” The difference between what the world calls “history” and what we call “redemptive history” is simply the fact that God is the Author of all history, and the ultimate goal – the eschatological culmination which our God has decreed He has been pleased to communicate to us by means of covenants.
The driving force behind revelation, and so Covenant Theology, is eschatology – eschatology precedes revelation – (Ephesians 1:4; 2 Timothy 1:9; Titus 1:2) – The end of revelation, and so Covenant Theology, is also driven by eschatology, and is the renewal of all things, beginning with Christ, and having its completion is the ultimate salvation in the New Heavens and Earth where He gives us our glorified, sinless eternal bodies to go with the regenerate nature we received when we were saved – Romans 8:19-23; Ephesians 1:7-10; 1 Corinthians 15:20-28; 2 Corinthians 2:4-5; Revelation 21-22). This makes the importance of Covenant Theology obvious. As we know all things are moved along by God’s decree (which is understood to have always existed unchangeably, as God does not change and is infinite and eternal – this is an eschatological statement, as well as a statement regarding God), it is through the revelational understanding of Covenant Theology that we are privileged to be given the comprehension of the outworking of that decree. In this sense, we may say that Scripture is the outworking of God’s covenantal dealings with those He created.
In other words, Covenant Theology is the system God imbedded in His Scriptures to show how we are to see and understand who He is, how He relates to His chosen people and those who are not, and how we, as His people, relate to one another. For us, it is the history of salvation, with all the promises, admonishments and teaching necessary to grow in holiness with and by God, and that means it is indispensable for us to work as individual yet joined (organically unified) members of Christ’s body. For the reprobate, it is the history of idolatry leading to damnation where individualism is not only celebrated, but worshipped. In Covenant Theology, which is simply to say the true manner in which we read God’s truth, we are shown the “interconnectedness,” or harmony, of Scripture, and how God saves His people to His glory and their benefit, as well as how He judges those who are not His people, also to His glory.
To give some idea of the importance of the covenantal construction of Scripture, in the English versions, the word “covenant” appears 292 times in the KJV, 293 times in the NJKV, 319 times in the ESV, and 315 times in the NASB (the difference in the number of times between English translations is due to the translations of certain words into other, related terms, such as “decree,” “statutes,” “testament,” and etc.). This alone would indicate the way God relates to His people is especially considered by Him to be by way of covenant. That our Creator built this system of doctrine into His Scriptures shows the importance it carries, and the key to that covenantal doctrinal emphasis is our Lord Jesus Christ (the New Testament has the word occur 32 times in the ESV, 33 in the NASB, 28 in the NKJV and 20 in the KJV).