For an independent contractor, GitHub Copilot Individual is the most suitable and cost-effective plan.

Chat history provides valuable context to GitHub Copilot, helping it generate more relevant and accurate code suggestions based on previous interactions and conversations.

GitHub Copilot primarily impacts the software development process by increasing productivity through automating repetitive coding tasks.

Improving the context for GitHub Copilot involves opening relevant files in your IDE to provide immediate context and adding relevant code snippets directly to your prompts to give Copilot specific examples and information.

GitHub Copilot supports the ".Copilotignore" file, which allows users to explicitly exclude files or folders from being considered as context for suggestions and from being used for future model improvements. This is the appropriate way to protect proprietary code.
Reference:
https://learn.microsoft.com/en-us/training/modules/github-copilot-management-and-customizations/4-manage-content-exclusions
https://marketplace.visualstudio.com/items?itemName=Mattickx.copilotignore-vscode