Think about the Salutation as what goes on the inside of a letter (Dear Mr. Smith, Dear Bob, Dear Mom). ACT can be configured through Tools and Preferences to default the Salutation field to either the First name or Last Name of hte Contact Field). You can either accept the defaults here, or put in your own.
Use the Contact field for what you would put on the outside of an envelope or in an address (a little more formal). Here you can put (Mr. David Thomas, Dr. and Mrs Dave and Betty Thomas, etc). The program will prompt you to enter last name, first name if there are more than two words.