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"group" in that context refers to the specific group assigned to that file or directory. If you use ls -lh instead of plain ls you can see which group is referred to.
If you use id or groups you can see which groups your account is a member of. You can then assign any of those groups to a file or directory you own using chgrp.
Groups are just user groups, allowing users to share specific information, part of that group. If group permissions are set, i.e. if chmod g+r or w or x, then the group has access. No password needed nor any other prompts.
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