Where the Eternal Covenant was made between the Father, the Son, and the Holy Spirit, the Covenant of Grace is made between God and Man. This Covenant of Grace is where God promises eternal salvation to Man based upon the sacrifice of Jesus on the cross. This is called a Covenant of Grace because it is initiated by God, due to no part and worthiness of man, and is unmerited favor received from God.
In this covenant, Jesus would become man (John 1:1,18; Heb. 2:9), be the mediator of a better covenant (Heb. 8:6), and being under the Law (Gal. 4:4) fulfills the Law perfectly (1 Pet. 2:22). Therefore, the righteousness accomplished by Christ is given to the believer so that he has the righteousness that is not his own, but that of Christ (Phil. 3:9). The believer's responsibility is to have faith in the work of Christ (Rom. 5:1; Eph. 2:8-9), a righteousness derived in the New Testament times by faith, just as it was in the Old Testament times (Rom. 4:1-11).
The manifestation of the Covenant of Grace was progressively disclosed. It began in the Garden of Eden after Adam and Eve sinned and God promised a redeemer (Gen. 3:15), to Abraham the promise to bless the nations (Gen. 12:2-3), the covenant of the Ten Commandments given to the Israelites at Mount Sinai (Exodus 34:28), and believers in the New Covenant (Jer. 31:31-37) which is fulfilled in Christ (1 Cor. 11:25).