Your Prospects are what we call your "Dirty List". What does that mean? It means that it is a totally unorganized list of EVERYONE that you have ever met. When you import your email, your phone contacts, and CSV files your contacts will be added to your list of prospects.
As you identify people in your prospects that you would like to work with, you add them onto an activity track, and they will automatically be removed from your prospects and added to your leads. In other words, your Prospects are non-active contacts, when activity takes place a contact becomes a Lead or a Team member.