To group your friends, click on Friends up top. Then Friends in the left column. Then Create New List (assuming this is your first one). If you are adding people, then click on the list you want to edit and then “Edit List.”
You’ll be offerred a list of your friends. Clicking on their picture will add them to the list you are creating.
The green circle denotes how I split up my groups. These groups will be used primarily to determine who gets to see what photos I put up.