(Droid X instructions - not sure if there's a difference between phones). From the home screen press the contact icon. Choose the contact you want to edit. Press the menu button. Press Edit. From the Edit Contact screen click the picture icon in the upper left then either take their picture or choose an existing pic.
open your gallery and find the picture you want to assign to a contact and then hit the menu button and choose set as and then contact id or whatever the verbage is. then you will pick your contact and rop the photo.