She says she if afraid our close friendship will be hurt if dating doesn't work out. She says she couldn't take not hearing from me,that I am her closest friend in her life. She told this to the guy she is seeing about me and that he would have to except it.

It means just that. She doesn't want to ruin the friendship she has with you by dating you. You should respect her wishes, if you push it you may drive her away and ruin the friendship anyway

It means she treasures your friendship so much, that she doesn't want to get romantically involved with you because if it didn't work out, she's afraid she'd lose you as a friend.

To me, it sounds like she's letting you down easy. You're overanalyzing her words too much. She's trying to make it clear to you that she just wants to be friends and nothing more.

Be happy. Yes you want a relationship with her and she might not want it, and at first you might see this as only a rejection. That is because part of what she is telling you is a rejection, but if you want to analyze this then you have to look at the things she is implying. And what she is implying is something very beautiful, whether she wants to be romantically involved with you or not she is restricting that because she values the friendship you two have soooo much. So don't be down because she won't date you, be happy to have a friend that respects you enough to 1. Put you down easy, and 2. To value the friendship enough to actually be "afraid" to destroy it.

Good Luck,

Javi

As justcurious pointed out, she means exactly what she said.

In colloquial terms, you have been friend-zoned.