I cant figure out just what to do? Can you make friends with anyone in the game?

Just do quests for them.

I managed to make sixty friends, and a few drinking buddies.

It really depends on the NPC. Some will offer some quest, some just want something for you. As an example, some people might miss some valueable item (e.g. stolen). Bring it back and they'll call you friend/allow you to take their stuff. Others (think each town seems to have at least one drunken guy) will be happy with some coins or a bottle of alcohol.

If that doesn't answer your question, define "make friends".