What does a friend having their status as Snooze mean?

According to a moderator on the Steam forums "snooze" is a state automatically applied to users that have been away from their PC for 2 hours or more.

There are other programs that can interface with Steam, and some of these also have the option of manually changing your status to something that is normally not possible to manually set your status to. Therefore, you might find people in the "snooze" state even though they haven't been away that long.