Q: What does the Groups function do when it is selected in the Phone app?

I see an option to select Groups when using the Contacts function in the Phone app.  What does that do?  I'd like to set up some groups of my own but don't see how to do that or if it is even possible.  Any ideas?  My Contacts app has a Groups function and I've set up some groups there such as Family, Team mates in our fantasy football league, etc.

Thanks,

jbacinti