A lookup stores a reference to another record. The relationship belongs on the record that needs to point to its parent: a contact points to an account, and a service request can point to a contact. The stored identifier matters more than the displayed name. Two records can have the same label.
An optional lookup permits a missing parent. A required relationship does not. Master-detail adds stronger lifecycle and ownership behavior, which later lessons examine; a lookup should not be chosen simply because its screen looks similar. Start with the entity relationship, identify the reference target, and decide whether a record can exist without that target. A report that joins objects also depends on these relationships being correct.