It refers to a group of ads that are targeted to a set of keywords.

Ad groups typically consist of a number of ads that are meant to target placements, keywords or both. The bid amount or price is set by the user as and when the ad is triggered by placements or keywords in the ad group. These are also referred to as CPM (Cost per thousand impressions) or CPC (Cost per click) bid. There is also an option to set prices for individual placements or keywords within an ad group. Ad groups can be optimized in different ways. By changing the settings this can be easily achieved. However the settings will only for those ad groups to which sponsored search is turned on.