Picasa 3.8 has been launched with some amazing features, we have already talked about several Picasa tips which you can use to make it more useful for you. Another great feature that has been integrated with Picasa is that it allows you to add people pictures to your google contacts by uploading the people thumbnail photos.
It will take the image thumbnails as per the name tags you have added to your photos collection in Picasa, but if you have not tagged any one in photos with Picasa this feature is not at all going to be useful for you. In order to upload the people thumbnails, go to File Menu, Tools >> Upload – Upload People Thumbnails
It will ask if "you want to upload and replace all the thumbnail photos from your People Albums to your Google Contacts". If you click on "Upload", Picasa saves the photos to Google Contacts and you can see them in Gmail or in any other application that synchronizes with Google Contacts.
If you don’t want to upload photos for all your contacts, you can click on one of the people from Picasa’s sidebar, right on a photo and select "Set as Google Contacts Thumbnail". You can also enable "Upload people album thumbnails to Google Contacts" from Tools/Options/Name Tags (or Picasa/Preferences/Name Tags on a Mac) to upload the new thumbnails you select in Picasa.
[ Via Google Operating System