Roles are used to assign certain functionality to certain people. People with the "people" role can edit the people list and set roles. The roles list is at the bottom of the edit people form. Here is a list of available roles:

role description
coho can go to pages on the private part of the site, i.e. the part requiring someone to log in. everyone should have this role.
docs can edit the documents list on the Docs page
groups can edit the groups list
mail can edit the email lists
people can edit the people and family/household lists and assign roles
accounting can modify the account, budget and transaction data on the Accounting page
admin can do anything the other roles can do as well as modify settings for the site and backup the database and files