The top entry is for friends, and the bottom entry is for those characters that have died in your care. If you press the B (middle) button while viewing an entry in your friends list, a "good-bye" prompt appears. Select the upper option to delete this entry from your friends list, or the lower option to keep it.
For friends, the friendship level is indicated here. There are two types of friendships; those between to characters of the same gender, and those between two characters of opposite gender. The friendship level is written in a color bar below each character in the friends list. The color of the bar is different for each friendship level, so if you can't read Japanese, you can tell their friendship level by the color of the bar.
Opposite-gender levels:
blue = acquaintance (shiriai)
green = friend (tomodachi)
magenta = in love (koibito)
red = deeply in love (netsuai)
Same-gender levels:
blue = acquaintance (shiriai)
green = friend (tomodachi)
orange = best friend (shinyuu)
red-orange = super best friends (daishinyuu)
