Notice that in your Administration block, you have a link called Groups. When you click on this button, the following page will appear:
In Moodle 1.8, the concept of Groupings is introduced: a way of organizing various groups in a hierarchical structure. While this approach may prove to be more powerful, using groups is no longer as intuitive. For example, a teacher teaches four sections of the same class. The teacher could have 4 groupings (i.e. one for each section). Within those sections the teacher could assign various students to various groups within the groupings. Another great advancement is that students may now belong to multiple groups.