When a lead is declined, it is put into "Declined" status and removed from the Leads Page, but remains as part of your Contacts pool (will only be accessible through the Contacts tab).
You can set a lead's status to "Declined" by selecting "Decline" from the Leads Page action menu.
You can find contacts you have declined by going to the Contacts page (People view) and using the Contact Status filter. Select "Declined" from the dropdown menu to view declined leads:
You can also set a lead/contact to "Declined" status by going to the Contact (Person) page and manually changing its status to "Declined."
To restore a contact to a lead, simply change its status back to "Lead" or "Assigned." Making this status change will move the contact back onto the Leads Page.