God's redeeming plan is a covenant, because it was the agreed-upon counsel between the three persons of the Trinity. The Father purposed to send the Son to redeem His people. The Son bowed to the will of the Father, and purposed to become our Redeemer. The Holy Spirit bowed to the will of the Father and the Son, to empower Christ in His work of redemption, raise Him from the dead, and then apply His accomplished work throughout this age.
It is an eternal covenant, because there was never a time when it was not. The members of the Trinity didn't debate it between themselves, then arrive at a decision. There is no arriving at anything in God's eternal nature; it simply was. It is also eternal because nothing can break it. Christ was the Lamb slain before the foundation of the earth. God appointed Him to be the Christ in the beginning. God's chosen were appointed to life from eternity past.
Some of the brethren might fuss at calling the plan of redemption a covenant, partly because that word isn't explicitly used in the Bible with reference to the Godhead, and because some believers have been doctrinally prejudiced to feel allergic to the word "covenant" itself. But a covenant can be a settled agreement, minus the mystical signs God gave Abraham (Genesis 15, 17), or the liturgical formalities of Moses' law. Jonathan and David had a covenant without all the formalities.
Other denominations might prefer to call it the Plan of Redemption, but it seems to me that disputing this phrase, as opposed to speaking of "God's eternal covenant", which is the phrase we find in Hebrews 13, seems rather pointless. The members of the Godhead eternally agreed between themselves to redeem sinners, and they eternally divvied up the distinct tasks involved in that task. That is a covenant -- a firm and settled agreement involving responsibilities and promises, between two or more persons.
It is a grace covenant, because God foreknew mankind as fallen into sin and condemned in guilt. God's covenant of works was how Adam began (Genesis 1-2), but he failed it almost immediately upon the creation of Eve.How long do you suppose Adam went without sinning? One day? One hour?
We also call God's original, creational relationship with Adam a "covenant", in spite of the absence of that exact word, because we know from 1st Corinthians 15 that Adam was a type of Christ. We also know from Romans 5 that Adam represented others by his actions (see the parallelism between Christ and Adam). God promised Adam life as long as he did not sin (continued perfectly in good works, in other words). Adam failed,
Why is the covenant of grace important? It reveals to us the eternally gracious and merciful character of our God, who purposed our redemption before the first human was ever made. It reveals to us that each member of the Godhead was fully engaged in our redemption -- not just the Son. It protects us from the madness of the Pentecostal "Jesus-Only" cult, because there were three eternal Persons committed to this plan, not just One talking (crazily) to Himself.
And it reveals the unity of God's redeeming plan throughout the ages. Different administrations of the Lord's people came and went, but God's covenant of grace stayed ever the same as God walked it forward. The structure of God's people changed, from isolated individuals, to clan lines, to the three patriarchs, to Israel as a constitutional people, and finally to the sojourning multi-national Church. But the kernel, the nugget, the core of God's plan of redemption never changed. The saints of the Old Testament were our brothers and sisters, and they were saved the same way we are: by grace, through faith in the unmerited promise of a coming Savior.
His oath, His covenant, and His blood support us in the 'whelming flood. When all around our souls gives way, He then is all our hope and stay. On Christ the solid Rock we stand; all other ground is sinking sand.