New families are automatically created when you add a new person to the system. The person will be the Family Manager of their own family. Their initial position is selected from the "New Person" pop up under the General > Family section. 

You can add extra relationships between two people in the system (i.e. aunt, uncle, friend, coach, etc.). This can be done within the "Relationships" tab of a person's profile. This tab was formerly named Family.

This allows you to create social connections between two people, and also label them and notate the relationship. You can specify each side of the relationship and the connected profiles will be accessible on both profiles with the appropriate label (i.e. profile will show sister on one end and brother on the other). A set of common relationship labels has been added to the system, but you can create new ones using the cog menu next to the dropdown as needed.

Connections between two families can be done via relationships that allow you to explicitly indicate the nature of that relationship. People can only be part of a primary household with any external relationships being set separately.

A Family Tag helps you qualify further the family position. It corresponds to this field in the user interface:

For example, the position could be "Child" and the tag could be "Granddaughter"

It's an optional field.