Policies allow you to apply settings to a specific group or set of group. Policies are applied to the group that they are attached to and any sub-groups within that group.
A policy applied to Group 1 will also be applied to Sub Group 1.
A policy applied to Group 2 will only be applied to that group.
Policies contain items which are the settings you want to apply to the group, for example auto updates or mute sound. Each policy can have multiple items.