There are a few use cases for using hot background location app Highlight, cofounder Paul Davison explains to me. You just met someone and you want them to find out more about you. You want to note that someone is particularly interesting for future reference. And, you want to see which friends are nearby, or have recently left.

The app is getting a set of updates today that should make it more useful in all of these situations.

The first is a particularly smart new addition, also called, er, Highlight. Click on any user profile, and you simply click the button and you’ll add the person to a saved list of contacts. It’s asymmetrical. They don’t have to Highlight you back. But, while any user can see who you’ve Highlighted, this isn’t a numbers game like Twitter follower counts. It’s more like a public poke, or a bookmark — a way for your friends to see that you’ve noted that someone is interesting.

Saved Highlights appear in a new left-hand navigation menu, so you can check their profiles (but not their locations) later on. Davison also says that the system will look at who you Highlight to find other similar people who are nearby.

The second addition builds on the first, by using existing social relationships to turn Highlighted people into long-term connections. You can now follow a link from users’ Highlight profiles to see the original version back on Facebook. There, you can friend or subscribe to them. If the user is on Twitter, they can also now update their Highlight profile to include their handle, and you can take a link to follow them on the microblogging service, too.

I recently speculated about the ability for Highlight to help users share contact info via an address book sync of some sort, but this is a more elegant solution.

For the third use case, the app has subtly changed how it displays location times. If someone is currently nearby, the time-stamp will just say “now.” Otherwise, it will say how many minutes ago they left the vicinity, and they’ll drop down into the history list of formerly nearby folks. This should further help connections between proximate users.

Users will also notice lots more spit and polish. The left-hand navigation bar also includes a button to pause Highlight in case you’re getting too many notifications or want to conserve battery life. The main interface includes a search feature where you can comb through your entire location history to find people who have at some point been nearby.

The overall sense you get is of an app that’s incrementally moving towards a big strategic goal. A lot of the other background location apps feel like they’re still trying to find a market fit, and adding and subtracting features in the hope that they’ll somehow get it right. Instead, Highlight is on the second iteration of becoming the way you discover friends and new people around you, layered on top of the real world connections you already have.

Like some of us have already been declaring, this one is going to be a hit at South By Southwest this weekend.

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