Its fairly simple, but a few questions to ask.
1) Does your friend already have a domain name?
2) Are you going to want to pay for charges if he goes over your limits?
First of all, Goto Users, Manage Users. Create a new User, I would only set him up with FTP access unless you are sure they need Shell Access.
Now, if you answered No to #1, then you need to Goto Domain, then Registrations and Register a new domain. (Note: registering a new domain does cost, it is not free).
If you answered Yes to #1, then you can goto Domain, Manage Domains, add Domain and make sure to setup the domain under his Username. (You can also do Reg Transfer and set it up that way, if you want Dreamhost to handle the Domain name permanently, Reg Transfer also costs $9.95 and it will renew the name for a year)
Now, if you answered NO to #2, be sure that you set limits on his account on how much space he can use, etc, so that he doesn't accidentally end up costing you additional fees.
I hope that helps, and I'm sure I missed something... sure of it.