You can either sync or have the computer overwrite the phone. Connect the phone, in iTunes click on it and then click the Info tab on the right. Check Sync Address Book Contacts. If you want 2 way sync just click Apply or Sync. If you want to have Outlook overwrite the iPhone scroll down to Advanced.
You can do this through iTunes. If you connect your phone and click on it where it appears under Devices, then on the screen that appears, click on the Info tab. In here you have the option to Sync Contacts with a drop-down box to choose what program you want to sync with.
The first time you do it, it should give you the option of which source you want to overwrite or to merge. After that, by default it will overwrite the Outlook contacts with the iPhone contacts unless you scroll to the bottom of the Info page to the Advanced section and check Contacts to overwrite the phone.
Using iTunes is currently the easiest way to sync Outlook contacts with your iPhone. In additon, there is a myriad of third-party programs to backup iPhone contacts, import to your iPhone contacts or quickly edit and even group them. Regarding grouping, since there are no direct contact groups available within the default iPhone Contacts app, Outlook is the only way so far to put iPhone contacts into groups.