A guest  role is not something that you manage.

A user shows up as a guest on a site when he has access permissions to an item on the site (say a document in a library) but not the site itself.

You cannot give guest role  directly, nor take it away.

Some of the users  are showing  up as guest  and contributor  for the permissions of the site itself. What would be causing something like this?

The Guest role  in v2 (called Limited Access in v3) indicates that the
person/group in that role has permissions to one or more lists (folders
or list items too in v3) in the site but not the site itself.

The role cannot be removed or modified in any way.

I believe that it also shows up for a user when the user has more
permissions on the items than on the site. Like Contributor on a list or
document library but only reader  on the site. If they contribute an item
then they have full control on that item. It is confusing to see guest
as a role  for a user who actually has some role on the site already.

From testing (in v2) it appears that Guest shows up when you give a
user permissions to a list or library, regardless of the user's
permission on the site. I gave an Administrator view permission to a
Doc Library and now the user has both Guest and Administrator roles.