Lead source allows you to distinguish how you received the contact information from the customer whether this was a referral, a meeting at a trade show or whether it came from your Web Form for example.
If you would like to add more options to list of Lead Sources in the system all you have to do is...
Go to Leads & Sales > Lead Settings tab > enter your source and save changes.
Your Lead Sources will then show when you add new contacts and you can choose which Lead Source you want to apply.
Here are other documents that may be of interest to you: