Your answer is mostly right. But I don't know why you started the second sentence with "Therefore." If you take it out, your answer will make more sense.
I think you need to understand the word, "differentiates." It means to know the difference between.
Your question is asking, "What is the difference between grouping people and stereotyping people?"
What differentiates the act of grouping people from the act of stereotyping?
Grouping people is the process of uniting them into a group in terms of similarities.
Therefore, stereotypes are usually based on assumption or generalization that someone makes on the characteristics of a particular group. Usually, the information may not necessarily fit all members of that group. For example, all Americans are rude and arrogant.
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Diference between Muslims and Arabs?
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