In Address Book, note the "Group" panel on the left.
You can create a group by clicking on the "+" on the bottom of the panel, and populate it by dragging cards of people in the address book into the group.
You can also create a group in Address Book form the File menu, which gives you options to create a group, and "New Group From Selection" which is handy if you've selected a number of cards in your contact list.
Finally, there's my personal favorite, "File > New Smart Group". This is excellent because it permits you to create a group that's made of cards meeting criteria that you specify. If you add a new card with the specified criteria, it's part of the group. One thing you could do is create a group of people that, for example, live in your hometown... However, I've found it immensely useful to select cards based on a word or phrase in the note field (e.g., I have a smart group called Christmas Card that contains all people with the phrase "xmas card" in the note field). You can also make groups like "everyone that's got a birthday in the next week" and so on.
If you want to send e-mail to a whole group, simply type the group name in the To:, Cc: or Bcc: fields in Mail. You'll notice that as you type, the group name will appear in a drop down and you can select it. When you do, the group name will be replaced with all the individuals in the list.
You can add just such a button to Mail's toolbar. Right click the toolbar, select Customize Toolbar, and drag the Address Book button up into the toolbar.
