applewhore-
I haven't delved deep into Address Book or Mail, so I could definitely be missing something, but the only way I know of to categorize contacts is to apply the "This is a company" option in Address Book or to make a Group in Address Book and manually add the contacts to the group. This isn't bad, but what happens if you add ten new contacts and forget to add them to a specific group. How do you easily go back and find those ten new contacts? You can't. Also, you can't color code contacts and then sort by the color code.
However, this is what you can do to work around it. It's a pain at first, but not so bad once you get going. You can add a custom field or use the notes area in Address Book to make a note like "--Friend" or "--Competitor" or whatever. Then when you search in AB, it filters to those tags. It's actually more flexible than color-coding. Once you've filtered your search, you can then make a group for use in Mail.