Contact Vs. Personal address book

Contacts have more fields for entering information, and are part of your .pst file per email identity. As such, they are readily backed up along with your .pst file. Address book is saved as a .wab file, used by ex. Outlook Express.
Contacts can be displayed AS an address book, but they can be exported and imported, most commonly as a .csv file for sharing between other applications.

Contacts tend to be more user friendly than the personal address book.

I would like to append to DustyD's description.
Personal Address book is a file (service) that is created (usually on the local PC) and stores your personal email addresses. You can create your own distribution lists. The addresses and distribution lists are only accessed from the PC that references the file.
Contacts are individual entries, not distribution list. You can store more information and this is stored on the Exchange server. Where ever you log into Exchange, your Contact will be available to you.

Contact list would be good for storing business card like information (Name, address, fax numbers, personal notes). Personal Address Books would be good for holding email's of friends\family where you just need name and emails.