On the person's profile page, click "Change" near the image. Then change the person’s category or display option, or remove the person from your contacts.

If you leave the Friends and Family boxes unchecked, the contact is not added to these categories.

If you uncheck the box under Display Options, the contact will not display to others who view your contact list. You will see the person in your contact list, however, and you can get updates for the person’s content.