Doing this allows you to filter your contacts by one or more Contact Types you've assigned. This will help you finding the appropriate resource.
You would use this feature to find Contacts from the Contacts List or when you are in the Calendar and want to view Tasks assigned to Contacts by Contact Type.
Step 1: Navigate to Contacts and select the Contact
Step 3: When happy hit Save
Your contact type will now be shown within that contact, as shown below.