There's no limitations in the evaluation version (aside from access to the full third party catalogs). Provided you have WSUS configured to utilize server side targeting, you'll need to first create a new computer group with the "Add Computer Group" button. This functionality can be located in the "Actions" pane when you have selected the "All Computers" node. Once created you'll be able to move machines to your newly configured groups by utilizing the "Change Group Membership" button.
I'm enquiring as to whether there is the option to create a nested group, i.e. I create thre groups called App1 - Dev, App2 - Dev and App3 - Dev and then one group call All Apps - Dev which contains the 3 sub groups. Is this possible?
This is certainly possible in both the Patch Manager console, and the WSUS console as this is a function provided by WSUS itself. In Patch Manager you would just need to select the group you want to create a sub group under, and then click the "Add Computer Group" button in the actions pane.
Some clarification may be helpful here...
WSUS Target Groups can be nested, e.g.
All Apps - Dev
App1 - Dev
App2 - Dev
App3 - Dev
Patch Manager Computer Groups cannot be nested; there is no heirarchical capability, just a flat list of computer groups.
You can still create the four groups, as above, and you can place all of the computers from each of the three subgroups into the All Apps-Dev group, but within Patch Manager, they'll be seen as for independent groups, lacking the heirarchical relationship that exists with WSUS Target Groups.