You mean "Automatic Wi-Fi connection" section? Maybe I'm not reading it right, but it seems that it's actually about something already fully paired (e.g Smartwatch) having access to the WiFi like the Apple Watch.

I think the Apple one is limited to people you are somehow iCloud “friends” with, I’ve never seen a prompt for someone I don’t know

My understanding is, the person simply needs to be in your contacts. Nothing related to iCloud or friend connection.

They need to be in your contacts with their iCloud email. And similar you need to be in their contacts with your iCloud email. Doesn't work without iCloud.