a little clarification about contextual filter When we say "Content: Has taxonomy term ID" or "Content: Nid", what do we mean by content? Is it the element which is being viewed currently or the element that is about to be fetched from view(output of view).

When "Content: Has taxonomy term ID" is added to a view, will it  compare with the currently viewing node whether it has term id or compare with the view's data that is being fetched, whether it has taxonomy terms?
1) Content refers to Node in Views 3.x

2) Contextual filters are filters. That means that any filter you add here is a dynamic filter fetched from context (page path arguments, node data etc). So they are filtering all the results (views data if you prefer it).

A good idea is to enable the display of the database queries (admin/structure/views/settings) so you can inspect what are you doing with every views settings.