Okay. So what is called 'Context' is actually what VCAA calls 'Creating and Presenting'. The aim of this is to give students creative license. You are essentially writing in whatever way you want, in whatever medium you want. You are less restricted than the text response and therefore you can draw ideas from many places. Although you do have a certain text which you are required to explore at least indirectly, your writing does not have to revolve tightly around it. Your main boundary is that you are dealing with the implications of your Context.
So in Encountering Conflict (I don't know much about it), you need to examine (through abstract or more straightforward ways) the subtopics that arise from this - how does our identity cause conflict? does conflict manifest between people who think similarly? etc. You will be given a prompt to start you off. This is not like your 'Reading and Responding' (text response) topic, it more a springboard for you to write from. Although you do need to connect with your prompt, you can do so loosely and let your writing go wherever you want it to go - as long as you have at least started with the prompt and followed a natural pathway away from it. You use your text by including within your writing some of its themes. So, if your text is talking about a teenager who doesn't get along with their parents, you need to look at how teenagers encounter conflict. But you could be really wacky and connect with your text in a different way - how about writing about how youth gorillas attempt to climb the hierarchy through conflict? And you don't have to make your response on something that happened in the text. It can be based on an idea that the text presents. For example, a text might suggest that people in unequal environments experience more conflict.
This is from VCAA:
Students will read these texts in order to identify, discuss and analyse ideas and/or arguments associated with the selected Context. They will reflect on the ideas and/or arguments suggested by these texts, explore the relationship between purpose, form, audience and language, and examine the choices made by authors in order to construct meaning.
Students will then draw on the ideas and/or arguments they have gained from the texts studied to construct their own texts. They write for a specified audience and purpose and draw on their experience of exploring texts to explain their own decisions about form, purpose, language, audience and context.