Long ago there was Friends - then it was renamed Favorites and a new Friends category was created.
Favorites (originally Friends) is just a list for your own use - the other profile has no idea that they are on your Favorites list. There has long been the ability to allow the entire group access to certain galleries of your photos - this capability may still say Friends and I'm not sure if it works for both or not.
The new Friends is a two-way arrangement - the other profile has to accept the request. Other than seeing Wall postings of your Friends on your Wall and possible access to designated galleries I have no idea what features the category includes.
There may be more features and uses for these categories but since documentation is a bit lacking on SLS we may never know. Personally I use the Favorites with Notes to keep track of potential playmates - I don't use social media and have no desire to start. Plus who knows what upcoming new features will be rolled out with no advance notice or explanation.
