@Ragman,
This, plus you likely both have location information on, and so Facebook is putting together that you are geographically close. There may be other things, a High School in common, local checkins (Foursquare, perhaps) in common, local business reviews (Yelp, perhaps) in common, etc. There is a ton of data out there on people. Some of it Facebook owns, some of it buys, and some of it conjectures with its algorithms.