Product sets work to help you organize and manage products.  A product can be in any number of sets.  An important feature of sets is that special discounts can be created which apply only to certain sets.

If you have created Sets, a list of sets shows up on the dashboard.  When you filter by a set, only products in that set will show up.  If you check more than one box, only products that are in both sets will show up.  So you can start with more general sets and add more specific sets as your inventory increases.

The add / edit sets link lets you add new sets.

This is pretty straightforward.  You can name your new set here and it will be added.  The name isn't important because it can be easily updated if you change your mind later.  

Clicking on the name of a set lets you edit it.

Here is the set of "special ducks."  The order they are in will be used when that set is picked to display in the product list block.  Deleting the set just removes this association.  It doesn't delete all the products in the set.

You can add a product to a set when you edit a product's properties or create a new product: