For those who can't find the setting in the People app, I explain how to set custom alerts.
Setting a custom ringtone or messaging alert is a quick and easy way to identify who is calling or messaging you without looking at your phone. In the end, you don't have to run across the room to see if an important someone is calling you; you can tell just from the sound.
The process for setting a custom alert on a contact-by-contact basis is easy, taking just a few minutes of your time.
That's all there is to it. The next time the contact calls or messages you, your device will use the custom alert to notify you.
For users who want to use an MP3 or ringtone not included in Windows Phone, you can add your own alerts by following the instructions laid out by Microsoft here. The instructions are simple and easy enough to follow. You need to have a non-DRM music file, under 30MB, and move it to the Ringtones folder on your mobile device. Once you have the file saved to your device, you can then select it using the method outlined above for a custom contact alert.