In the Item record, I have a custom segment (non-GL) called Item Category. And then I have a custom record called Contract with Item Category as a field. Is it possible for me to attach the Contract as a sublist to the item record even though it's 2 hops away?

Yes make a saved search of contract records and mark as available as Sublist Also put item category as the first available filter Then go to customization > forms > Sublist Add your saved search as the Sublist to item records. Choose your subtab. Then also select item category as the field

Ahhhh so that's the purpose of the Field on the Sublist definition