How can I configure a private (friends only) IRC Server?

I had some IRC servers way back when. If I remember correctly, you set the connection password in the third field of the I: lines in ircd.conf.

The clients connect with something like /server yourserver.com:port password, and I believe most clients will ask for the password if you fail to provide one in the connect string.

There are a number of other options if you want to further restrict the connections.

I:address mask:password:domain mask::connection class

The connection class is defined with an Y: line. There's probably one in the default configuration that you can reference. Looking through the example ircd.conf is probably a good idea, most configuration options are explained there.