Ok, have figured it out. Apparently, Microsoft is trying to make it easier for users to be able to access the files from anywhere. And so all contacts are stored on my Windows Live account. So there you go - just tap on the Windows Live option and go ahead entering the Name, Company,etc about your contact.
I think Microsoft could have done a better job communicating to users that Windows Live is in fact saving to Phone. I was looking for that specific information and spent way too much time here figuring it out!