As an extension to the following feature, this add-on allows for friendships to be created between members.
Once requested (by writing how you know each other), the prospective friend will be alerted and must confirm the friendship. The initiating friend will then be alerted that the friendship has been formed. Friends can also flag that they know each other personally.
In conjunction with the User Criteria by Waindigo add-on (version 1.0.2+), users can be promoted to user groups based on the number of friends and personal friends they have on the site.
Additionally, users can set their privacy settings so that certain actions can only be performed by friends (e.g., viewing profile, starting conversation).
Thank you to Crazy Achmet and CFodder for contributing to the development of this add-on.