A 'contact' is someone you wish to keep in your private list of other members.
A 'friend' is someone you have "made friends with" -- who is in your 'friends' list.
You can add a 'contact' to your list at any time; if you send someone a "friend request" - and, they accept it - they "become your friend" and get added to your 'friends' list. The same works in reverse if someone sends you a "friend request" - and, you accept it.