What Ricardo and Grace are because Grace hates the terms Friends. She doesn't believe that people that have been together in many different ways can ever just be friends. Ricardo hates Grace and just wants to label her a friend. AND THAT JUST DOESNT WORK. So they are now Each Others.
Two people who both share a derogatory quality (or qualities) in common that make these two people suited for each other in a relationship. It is often used to describe two people already in a relationship in a condescending manner. The phrase implies that because of this quality, they are not worthy of dating other people.