I'm not sure, but I think it works on something called a Cell ID. I assume this means that the phone is Identified by an ID, and Google needs the phone number to find which ID it needs.
I'm not entirely sure why it would ask for your friends email adresses, but it seems that most of the phones that have this function, are smartphones, so will be email enabled, that may have something to do with it, but I don't know.
Have a look at these links for more info:
http://www.google.com/support/mobile/bin鈥?/a>
http://www.google.com/support/mobile/bin鈥?/a>
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