BuddyPress is a suite of plugins for WordPress MU. These plugins allow you to add social networking features to your site, including friends lists, private messages, photo galleries, status feeds, and more.
The complete suite of BuddyPress plugins includes:
Extended Profiles: Add extra information to your users' profiles.
Private Messaging: Make it easy for members to contact their friends on-site.
Friends Lists: Allow your users to maintain a list of their on-site friends, and see who others have added as friends.
Groups: Allow users to create and join groups on any topic they choose. Groups have their own "wires", forums and news pages.
The Wire: Site users can visit a member's wire and post messages to it. This is similar to a Facebook Wall.
Activity Streams: Members can post updates to their activity stream. This is similar to a Twitter stream or Facebook Status Update.
BuddyPress sits on top of WordPress MU and is installed much like a normal plugin. You don't have to install all the features. If you want only Friends Lists and Activity Streams, you can choose to use just those plugins, or you could simply install everything. The choice is yours.
You can find out more about BuddyPress at http://buddypress.org/.