Google added three new built-in contact groups to Gmail: “Friends, Family, and Co-workers” to help you organize your contacts. You can move contacts in and out of these groups at any time. In addition, you can create a Google profile to help people in these groups keep in touch with you. They will be able to easily find your profile from various Google products. iGoogle is one of the services that’ll use these groups for managing your shared activities. One size doesn't fit all, so separating your contacts could simplify the way you share and receive information.
If you don't like the new groups, the bad news is that you can't delete them. Try to ignore them, but keep in mind that they'll be useful at some point.
Google has three default contact groups: My Contacts (manually-added contacts), Suggested Contacts (email addresses collected from your conversations) and Most Contacted (20 frequently-used email addresses). Google no longer automatically adds email addresses to My Contacts.
Source:→ Google System