Note: Although connectee is not listed in dictionaries, I use the the term for this article. I feel it more indicates a person than connection does for LinkedIn context.
You can create custom groups and assign names (called Tags, functionally keywords) that indicate characteristics for your connectees. For example, the default Tags that LinkedIn assigns are based on the original invitation reason, such as colleague, classmate, group member, partner, and friend. Untagged, I have concluded, apply to connectees that I invited or who invited me and had inserted an email address after selecting Other (reason for connection). Your invitation choices might vary slightly from what I list.
By grouping your connectees, you can filter and find specific connectees by company, function, profession, or other category. You can assign multiple tags to connectees. For example, a connectee can be a co-worker, a professional organization associate, and a classmate.
A practical use for grouping connectees by a Tag category is using it for creating a recipient list for an outgoing email. By assigning one particular label, you can display all the appropriate connectees and send the message to only those people. And you can skip needing to view and review your entire list of connectees.
LinkedIn default Tag categories are few, but you can create additional ones. You can add new Tag names as a Manage Tags task, or add them when you review any connectee "skeletal profile" (my term, now referring to as SP). Adding a new Tag name in an SP adds the Tag label to the connectee's profile, and makes the label selectable for any connectee SP that you edit.
Click Contacts > Connections to open the Connections page (Connections tab displayed).
The left section (Filter Connections) displays the number of connections you have, the expandable and collapsible Tags link, the Manage link, and other expandable and collapsible links (but not discussed here). The Tags labels are keywords for your connectees. With Tags expanded, click a category for alphabetically displaying your connectees of that category to the middle of the page. Each of those entries in the list displays the connectee's thumbnail picture or icon, name, number of connections, and Headline text.
Clicking an entry in the list highlights it in blue and displays the SP to the right of the page. Among other pieces of information about the connectee, the SP displays the connectee's name, Headline text, current Tag labels, if any, and the Edit tags link. Click the Edit tags link for adding, changing, or removing keywords that are associated with the connectee.
If adding new Tags (keywords) is something new to you, you might add them by using the Manage function. Click Manage for opening the Manage Tags window. In the text field, enter a keyword, and click the Add New Tag button. Consider keywords that reflect your present company, a previous company, a professional organization, a LinkedIn group name, a profession (particularly for other connectees). The keyword shows up in the list. Continue adding keywords. If you want to remove any keywords, click the choice, and confirm the removal. After modifying your list, close the window by clicking Finished.
One connectee group you should review and assign meaningful Tags to is untagged. Click untagged. In the list of untagged connectees, associate each connectee to at least one keyword. Another group category maybe worthwhile reviewing and reassigning labels is friend, reserving the label for people you truly consider to be actual friends rather than professional acquaintances. Additional ideas for Tags keyword assignments are realtor, recruiter, landscaper, and other roles that your connectees fulfill.