You can not create groups on the iPad, or move contacts between groups. Groups can not be used to address messages (e-mail or SMS/MMS/iMessage). There is a "Groups" bookmark in the address book, but you can not create groups there or move contacts from one group to another. That must be done on your computer.
Why then on the Contacts information page under built-in apps for the iPad does it state:
"You can group your contacts — coworkers, babysitters, bandmates — so you can find them even faster."
Check it out yourself:
Well, Apple took down the comment you referenced.
Just the same, this is a major fail of iOS and the Contacts app, regardless of whether the iPad in question is gen. 1, 2, or 3.
So Apple engineers, here's a challenge from me to you:
Add the functionality to the Contacts app across all three generations of the iPad and all iPhones so that Groups can be:
3) contacts added to and deleted from groups.
I'll be waiting and looking for the update.