[A friendship is a mutual, two-way relationship between two users. It is initiated by one user and accepted by the other.

A contact is a one-way friendship. This could be where the other person does not accept the friendship, a friendship request is pending, or you do not wish to be friends at this time but want to show them as a contact only.]

Similar but a minor difference, for a friend the friend checkbox is checked - in your list of friends/contacts on profile page.
for contacts you still have it listed , but the friend box is not checked.


Albums-
[ Public albums can be viewed by anyone
Private albums can only be viewed by site staff (moderators, administrators) and your Friends and Contacts
Profile albums are viewable only by you. However, you can use the images to customize your public profile ]


hope that helps.