Can anyone help me in understanding the contraction and the expansion of the phase space? what are Lyapunov exponents? and how come one understand this concept intuitively?
Consider a given phase space point. Now imagine a tiny hyper-ball around it and let this point move through the phase space according to the system's dynamics.
The Lyapunov exponents will tell you how this hyper-ball deforms itself, in average, along this phase space trajectory. It may, for instance, converge to a point, explode, spaghettify, etc.
The number of exponents is the same as the number of phase space dimensions. If the system's a flow, then one of the exponents is always zero, corresponding to the local direction of the flow; negative exponents indicate exponential attraction, and positive exponents exponential repulsion of nearby trajectories - the defining characteristic of chaos.
So, it's not the phase space itself which contracts or expands, but rather balls of trajectories (neighborhoods) on this space, as the system dynamics pushes nearby trajectories close together or further apart in certain directions (called stable/unstable, respectively) at any given point.
You can even estimate the exponents numerically by placing initial conditions very close to the point you're considering and measuring how they approach or depart from it as the system evolves.
And, with the help of Lyapunov vectors, you get not only the deformation rates (i.e., Lyapunov exponents) for the tiny hyper-ball, but also the directions along which the expansions/contractions take place at given point: