If you have a friend whom you refer to only by his/her nickname it can be annoying to feel like you should use his/er proper first name when adding him to Contacts. Even worse, then he/she shows up in Messages with a name you don’t recognize as easily. Here’s how to convince iOS to use his/her nickname instead.
Open his/her card in Contacts, tap Edit, scroll to the bottom, tap Add Field, and tap Nickname. That puts a Nickname field at the top under his/her proper name for you to fill in.
To get iOS to use it, go to Settings > Contacts > Short Name and enable Prefer Nicknames. From then on you can enter your friend’s nickname instead of his/her proper name in apps like Messages and Mail and iOS will also display it instead of his/her name everywhere.