What differentiates the act of grouping people from the act of stereotyping?

Question

How can stereotyping effect group relations ?

Grouping is done on a set of fixed criteria. For instance, physical handicap: legs, arms, other.
But in the group of legs physically handicapped, there will be a large variation of degree of handicap. Some will not be able to walk, but others will be able to walk with no difficulty. It is so easy after grouping to start to make assumtions, and stereotype.

Stereotyping puts folks into a larger group, and some members will not feel comfortable with that label.