Does a friend have to have a Plex account to be added to my friends list on my plex account or can I add them just by using their email address? If so which type of account do they need, a free account or a Plex Pass account?
You can do both ways.
Although the result will be the same.
They will end creating a plex.tv account for themselves.
But I recommend to create the account first.
For basic streaming from your server, a Plex pass is not necessary.
Keep in mind that the Plex apps for Android mobile and iOS are not free. (All other apps are, though.)
