Life naturally categorizes the relationship you create and maintain over the years: family, friends, co-workers, college buds, ex's, etc. Social media is no different. And, because folks like myself tend to collect people over the years, our social networks get very busy, loud, crowded and overwhelming at times.
It's nearly becoming unmanageable. I can't possibly following 1000+ people on Twitter and really know every single one of them. Add on Google+, Facebook, flickr, et al and all of a sudden, you have an ecosystem of people that fit into one category or another.
This is why lists, circles, groups, etc. are so important in keeping tabs on your social hive, as I call it.