In Shopping campaigns, product groups are used to:
organize products within a data feed
create a list of keywords used to target Shopping ads to shoppers
bid on organized inventory in an ad group
bundle items sold as a package, like a camera and tripod stand
Explanation:
A way to organize your Google Merchant Center product inventory in a Shopping campaign within AdWords. You create product groups using attributes derived from your product data, available within AdWords. Then
Read more here: https://support.google.com/adwords/answer/3517331