If you select the Group Type to be City, the interface will change to the following:
You must then select the Country and the State/Province for which you would like to set up a City group. You may not have a City group containing cities from different State/Provinces (e.g. Calgary and Los Angeles).
After selecting the Country and the State/Province, a list of all cities (for the selected province) will be displayed in the Items list on the left. Here is what this will look like when Canada and British Columbia is selected: