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Most people use just one Contacts folder to hold all their Contact items. You can, if you want, create additional Contacts folders in IMO and C/W Outlook. You might, for example, want to have one Contacts folder for your business contacts and another for your personal contacts. I don't advise that though, due to the problem that arises when a person is both a business and a personal contact.
Note
You can create additional Contacts folder within an existing Personal Folders file, as described here. You can also create one or more additional Personal Folders files and place new Contacts folders in them. Refer to Chapter 37 for information creating Personal Folders files.