When you post new content to your friend list, your client uses your private key & your friends' public keys to post a separate encrypted copy of the content for each friend. Thus only they (and you) can read the content.
Note before people point out all the flaws in this idea =)... I'm aware that this would have problems on the key management side of things, plus one-encrypted-post-per-friend would get computationally (and bandwidth) intensive as your friend list (or "circle") increased in size. I'm also not convinced people actually want this - Facebook has made it abundantly clear that most people don't care about online privacy.
I would use it, though!