How do I manually group content?
You can group existing flagged content into smaller groups through the Content type Group you created with the help of Views display type Entity reference. 


Create Content Views listing nodes that user might flag, don't create Page nor Block display, then when you save the View add the Display Entity reference from the Add dropdown.  
Under Format: Entity Reference list Settings choose Content: Title as the Search field

In the results you should now see a list of node titles that can be flagged.
Add a new Relationship Content flag from the Flag category and configure it:
Tick Include only flagged content
Flag Bookmark (or whatever the name of your flag is)
By Current user   

This will now filter out only the nodes that are already flagged by the current user. You are probably logged in as admin so you will now only see nodes that admin has bookmarked. 
Adjust other views settings (Pager for example to show all items), No results behavior to You haven't bookmarked any content yet and save the View. 
Edit your Group content type and add a new Reference field that references unlimited number of Content (nodes). 

You'll probably want to make it a Required field  

Under Reference type Reference method choose the Views you created in the first step. You will only see views displays of Entity reference type here. 

A new option will appear View used to select the entities. Choose your exact views display here.  

There are no arguments to pass, leave that empty (it is done through the flag relationship). 
On the Manage form display settings for that field choose Check boxes/radio buttons. 


Now when your users go to create a new Group node, they will be able to choose from a list of nodes they had already flagged: 



In case you need your users to control the order in which the selected nodes appear in the Group you can change the field widget to Autocomplete, that way the choices can be reordered: 



but this way the users have to search for node titles. You can help them by duplicating the views into a Block display and displaying it only on Create/Edit Group pages so users can see which title to search for.