Intel Mac :: Iphone Contacts Won't Sync To It

I've had an iphone 4 for 2 years, always syncing contacts with outlook on my old PC. Everything worked fine until icloud; I then found that any new contacts weren't syncing to outlook, I'm assuming because the phone was only syncing to icloud? No matter, decided not to worry as I wanted to buy a mac, having worked with them recently.

So my issue now is (very similar to before) that I can't sync my contacts from my iphone to my mac, again because it insists the phone is backing up to icloud. I tried this morning; it prompted me that the phone was 'on' icloud and therefore not syncing with mac etc; I checked the box to sync contacts, hit apply and merge in the hopes I could get my contacts from my phone onto the mac. Instead it's created another phone book on my iphone with just the three contacts that were on the mac?! 

Now when I go to contacts on my iphone it has three groups: All contacts, all on my iphone and all icloud. The first and last have all my contacts in; the all on my iphone has zero. I know the transition to something new isn't always easy, but I'm now really confused.The Mac is on Snow Leopard, and my understanding of browsing the forums is that only lion will work with icloud. I haven't bought any software yet, so I'm not concerned about compatibilty if I upgrade. I AM however concerned as to how icloud will work if I do upgrade?

Will it use the iMac or the iphone as the 'senior' device?

If it uses the mac will I lose all my contacts?

With cloud do I not need to backup my iphone?

What's the difference between backup, sync and icloud?