A company contacted me and want to use space on my website to generate leads and revenue. But what exactly are leads?
Leads can be anything that is a contact of a person that might buy what you are trying to sell. A lead can be an email address, a name, a phone number of a person that might be in the market for your product. If a company wants to use your website to generate leads for themselves then you should definitly receive either a payment for placing the ad, or a percentage of leads or sales that the ad generates.
You'd have to get details and work it out with the company that contacted you. If they're looking to pay you for LEADS specifically, then you'd have to work out a rate per lead, and have a tracking/reporting system set up. On the other hand, if they're just talking about having a banner on your site so their site gets more exposure, then you might just charge them a flat weekly/monthly/etc. rate.
What kind of business are you in that you don't know what a lead is? Its someone who may possibly be interested in buying your product or service or interested in joining your business. It is a sales term