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In this video tutorial, John from Excel Campus explains how to use groups and outlines in Excel. He demonstrates this using a formatted income statement, showing how to collapse and expand groups by clicking buttons adjacent to row headers. To create a group, users should select the desired rows, navigate to the Data tab on the ribbon, and click the group button in the outline section. This action applies the group, allowing users to collapse or expand it as needed. John also mentions that this grouping feature works for columns, providing flexibility in organizing spreadsheet data.